Monday, 19 March 2018

Dollar steady as Fed dot plot thickens; yen edges higher

TOKYO/SINGAPORE (Reuters) - The dollar held steady against a basket of major peers on Monday as traders braced for new Federal Reserve Chair Jerome Powell’s first monetary policy meeting this week, and as the increased threat of trade protectionism kept markets on edge.

The safe haven yen edged higher as investors’ risk appetite waned, with MSCI’s broadest index of Asia-Pacific shares outside Japan slipping 0.2 percent.

Traders are also nervous after weekend polls suggested a massive drop in public support for Prime Minister Shinzo Abe over his handling of a festering cronyism scandal, which has raised doubts about his ability to press forward with his reflationary economic agenda including monetary easing.

The dollar’s index against a basket of six major peers stood at 90.276. On Friday, the dollar index had hit a two-week high near 90.38, following strong U.S. economic data.

U.S. industrial production surged in February, while the University of Michigan Consumer Sentiment Index rose in March to the highest level since 2004.

The figures reinforced views that the global economy is enjoying strong growth and that the Federal Reserve will raise interest rates at the end of its policy meeting on Wednesday.

With a 25 basis point rate hike seen as a done deal, a key focus is on whether Fed policy makers forecast four rate hikes this year in their “dot plot” projections, instead of three they had projected at a December meeting.

The prospects of more rate hikes typically support a currency because higher interest rates tend to attract funds. However, recent political headlines have drawn more attention as investors fret that U.S. President Donald Trump’s tariff and other protectionist policies could disrupt the U.S. and global economy.

The Canadian dollar has taken the brunt of worries about U.S. protectionism, as investors discount the risk Trump may walk out of the North American Free Trade Agreement.

The Canadian currency slipped to C$1.3111 per U.S. dollar earlier on Monday, its weakest level since June 2017. It last stood at C$1.3102, little changed on the day.

In Japan, domestic politics have been an increasing focal point for traders.

A Nippon TV poll found Abe’s support crumbling some 14 percentage points from last month to 30 percent, the lowest for that poll in Abe’s more than five years in office.

The dollar eased 0.1 percent to 105.84 yen, inching back in the direction of a 16-month low of 105.24 yen set on March 2.

Most traders think the yen will rise if Abe has to resign given that his push for aggressive monetary stimulus has weighed on the currency.

“Japanese political risk will be a market focus for now. There is the risk that ‘Abenomics’ will be rolled back,” said Shinichiro Kadota, strategist at Barclays in Tokyo.

The yen also rose on the crosses, with the euro down 0.3 percent against the Japanese currency at 129.89 yen.

“There’s political concern in Japan, but also a lot of cross/yen selling,” said Tareck Horchani, head of sales trading in Asia-Pacific for Saxo Markets in Singapore.

Against the dollar, the euro fell 0.2 percent to $1.2270.

The common currency has been in a holding pattern since it hit a three-year high of $1.2556 on Feb. 16, with its March 1 low of $1.21545 seen as another support level.

Reporting by Hideyuki Sano

Powell's Fed to show policy caution, shun political friction

WASHINGTON (Reuters) - Jerome Powell heads for his first interest rate increase as Federal Reserve Chairman this week with an unanswered question looming above others: could his optimism about the U.S. economy lead to more hikes than markets have prepared for?

Powell’s public comments and Reuters conversations with his Fed colleagues since January, when he was confirmed as chairman, suggest such fears are overblown: Powell, the consensus-builder, may make some tweaks to reflect changing economic conditions but is as committed to gradual, moderate rate increases as his predecessor Janet Yellen who adopted that approach.

The new chairman’s overriding concern will be to sustain one of the longest U.S. recoveries for as long as possible, according to conversations with Fed officials and analysts. But given signs that the economy’s potential has strengthened, that might mean a policy-tightening cycle that lasts longer, with rates going a bit higher than earlier thought.

Powell was widely seen as a choice of continuity when President Donald Trump picked him. He served as one of the Fed governors during the central bank’s transition from crisis-era stimulus to a more balanced approach that led to three rate increases last year in response to steady growth and falling unemployment.

Yet uncertainty over how the 65-year old lawyer and former investment banker would steer the Fed was on full display last month when global stocks sold off briefly after Powell’s first congressional testimony.

Investors initially took his upbeat assessment of the U.S. economy as a sign he was more of a policy “hawk” than Yellen, and that four rate hikes might be in store for this year rather than the three previously telegraphed by the Fed.

This might still turn out to be the case. Even the dovish Fed Governor Lael Brainard noted recently that the economy’s “headwinds are shifting to tailwinds.”

But a stronger economy does not necessarily mean the Fed is abandoning its balanced assessment of risks to growth and price stability. Rather, it can give Powell wiggle room in balancing nudging inflation up after more than five years below target, and guarding against the risk of runaway prices as some $1.8 trillion in tax cuts and new government spending take hold.

Under Yellen, the central bank was still more guarded about the economic impact of such fiscal stimulus that could overheat an economy already near full capacity, but also boost business confidence and productivity, giving the rates more room to rise.

One hint whether the Powell Fed now sees more policy leeway will come on Wednesday when the central bank will publish its new median estimate of the so-called neutral rate of interest - the level that neither stimulates nor chills the economy.

This rate has drifted down to a 2.75 percent median, from 4 percent in 2013. A rise to, say 3 percent, could signal the fiscal stimulus and recent data like the blockbuster February jobs report have begun convincing Powell and others that the gradual rate-hike cycle could go on for another couple years or more, allowing extra room to cut rates in the next recession.

The Fed is expected to lift its policy rate to a range of 1.5 to 1.75 percent at the end of its two-day meeting on Wednesday and also update its assessment of the economy.

Months of synchronized global growth, some signs of U.S. price pressures and fears Trump's protectionist steps could escalate into a trade war have fanned concerns within the Fed that inflation, now a bit below its 2-percent target, could accelerate.

Some policymakers also worry the tax cuts could stoke risky investments that could tip the economy into another downturn.

But the Powell Fed is likely to take extreme care not to over-react to stronger economic data, according to a series of public statements by policymakers and minutes of their January meeting.

Investors can also take comfort from what those who have worked with Powell describe as his “if it ain’t broke, don’t fix it,” approach, which ultimately helped him land his job.

While Powell has shown little appetite for sweeping changes, such as revamping an inflation-targeting regime as advocated by some of his colleagues, the new Fed chief has already begun setting his own tone.

He is “careful and practical but definitely open to new approaches,” said Narayana Kocherlakota, former Minneapolis Fed president who worked with the then-Fed Governor Powell between 2013 and 2015.

For one, Powell, a Republican former Treasury official who enjoys his regular private meetings with lawmakers of both parties, emphasizes a warmer relationship with Congress and avoids venturing outside of the Fed’s strict policy remit.

During his first appearance on Capitol Hill as Fed chief, when asked what he was willing to do to ensure economic growth benefits all Americans and not just elites, Powell stuck to the script saying the Fed simply lacked the tools to do that.

That marks a contrast to the era when Yellen and her predecessor Ben Bernanke were in charge.

Their years in office were dominated by innovation and experimentation in the face of crisis, an overhaul of how the Fed sets and communicates policy, and sometimes free-form public discussions about social issues like inequality that put Yellen in particular at odds with the Republicans who control Congress.

So far Powell has dropped no hints of immediate changes to press conferences or other means of communication. His reluctance to take unnecessary risks may convince him that any change could confuse the public, do little to improve policy, and draw unnecessary political fire.

Reporting by Jonathan Spicer and Howard Schneider

Sunday, 18 March 2018

Investors eye currencies for those most at risk in a trade war

LONDON (Reuters) - Foreign exchange markets appear convinced that a global trade war is unlikely to break out anytime soon, although with long bets on some currencies at record highs, investors fear complacency may be setting in.

While the Trump administration’s threat to slap tariffs on Chinese imports has heightened fears of retaliation from Beijing, it has only mildly rattled markets enjoying a multi-year rally as global economic growth picks up.

The finance ministers of the 20 big world powers meet for a key G20 summit on Monday. Currency managers are keen to see whether diplomacy breaks out or disagreements deepen between the U.S. and others in the wake of U.S. President Donald Trump’s announcement on imposing tariffs on steel and aluminum imports.

Currencies don't like trade spats. President Obama's relatively narrow tariffs on Chinese steel in May 2016 saw the dollar index fall more than 2 percent over a month. Against the yuan, it rose 2 percent.

Similarly, within three months of President George Bush’s March 2002 tariffs on EU steel imports, the dollar declined 6 percent.

The latest trade skirmishes come as global currency volatility slips back after a February spike off multi-year lows. It remains below levels seen in recent months, according to a Deutsche Bank volatility gauge.

That leaves investors looking for early warning signs in currency markets that a broader shake-up of prices is coming.

Some currencies have moved as one would expect when smooth trade is under threat: The Canadian dollar has weakened and the Japanese yen has firmed, but the moves have for the most part been limited.

“The talk of trade wars at the moment is just that, talk. It’s such a difficult thing to quantify it appears as if the market is just ignoring it,” said Russell Silberston, a currencies manager at Investec Asset Management, which manages about $140 billion in assets.

“But don’t get me wrong, we’ve got it (the prospect of a trade war) down as a key event risk.”

Currency repercussions should a trade war materialize would be significant because low volatility levels have driven investors to embrace higher-risk strategies. Speculative positions in emerging market currencies, for instance, stand at multi-year highs.

“I’m still amazed by the lack of a reaction in Asian currencies. They must be waiting for the Chinese retaliation,” said Richard Benson, co-head of portfolio investments at Millennium Global, a currency investment manager in London.

“There would be quite meaningful moves. We are talking about Asian currencies that are at their strongest for years. There is zero of this (the risk of protectionism) priced in,” he said.

Benson believes big Asian exporters are most at risk, including the South Korean won and the Taiwanese dollar as well as the Australian dollar - a proxy for Asian economic growth.

The won and the Singapore dollar , another currency exposed to global trade flows, are trading near their strongest levels against the dollar in more than three years.

Among developed world currencies, Sweden’s crown is tipped by some for a tough time - ING strategists point out Sweden is the second-most open economy in the G10 group of rich countries based on a ratio of trade and economic output.

Bank of America Merrill Lynch sees the Canadian dollar CAD= most at risk, while the U.S. and New Zealand dollars also look vulnerable. The Swiss franc and euro would emerge stronger, they said.

Much of the confidence that the world will ride out Trump-inspired tariffs is because a sustained rebound in trade has buoyed growth, with the global economy set to expand at its fastest pace in six years.

While governments often move to protect local industry when growth is struggling, any Trump tariffs will come at a time when the world’s biggest economic engines - the United States, Europe and China - are booming.

Another explanation for the currency calm is that many market watchers do not believe Trump will follow through on his threats. David Bloom, head of global currency research at HSBC, is convinced U.S. officials may find a weaker dollar an easier solution in their bid to slash the huge U.S. trade deficit.

So what does rising protectionism mean for the dollar?

In the short-term, the dollar is likely to weaken, especially against the euro and yen. But should global growth tank or markets sink into a broader sell-off, the dollar should benefit from its status as a global reserve currency.

Investors are at least convinced about one winner: the yen, backed by a huge current account surplus and its reputation as a safe-haven thanks to the trillions of dollars that Japanese investors have poured into overseas assets.

“If there is a trade war, the yen is the safe-haven currency of choice,” said Manuel Oliveri, an FX strategist at Credit Agricole.

The yen has gained 6 percent so far this year and is near a 1-1/2 year high versus the dollar thanks in part to bets that the Bank of Japan will pull the plug on its massive bond-buying program.

BlackRock, the world’s biggest money manager, has studied immediate market reactions around six major trade risk events in the last 15 years and concludes that gold and the yen tend to outperform.

In a note, they called a trade war “arguably the most disruptive” market risk for 2018.

Reference: Tommy Wilkes, Saikat Chatterjee

Friday, 16 March 2018

Sterling edges higher against struggling dollar

LONDON (Reuters) - Sterling edged higher against a struggling dollar on Friday and is poised for its biggest weekly rise in a month as investors became cautiously optimistic that Britain would strike a deal at a summit next week over a transition period for its EU exit.

While sticking points remain such as a deadlock over the Irish border issue and recent headlines from senior officials have highlighted that differences remain, businesses have raised hopes the bloc’s leaders can endorse a transition at a Brussels summit on Friday.

“A transition deal is not a game changer for the currency markets but what will be a major driver is if we get an open-ended transition deal which will take away the nervousness of a hard Brexit,” said Morten Helt, a currency strategist at Danske Bank in London.

On Friday sterling was up by a quarter of a percent at $1.3977. For the week, it has gained one percent, its biggest rise in a month.

Against the euro, which is a better barometer for Brexit negotiations, sterling consolidated gains at a 2-1/2 week high of 88.16 pence.

Sterling hit $1.4346 on Jan. 25, its highest level against the U.S. dollar since Britain voted to leave the European Union in June 2016.

Though it has pulled back modestly from those highs, it remains near the top of its trading range of $1.20 to $1.43, buoyed by hopes a Brexit transition deal will be eventually be struck and by a generally weaker U.S. currency.

In other major developments next week, the Bank of England is set to announce a policy decision which may shed some light on the future path of interest rates. Markets are now pricing in about 36 basis points of rate hikes over the year.

Britain’s reliance on the “kindness of strangers” to finance its large current account deficit appears to be increasing, the Bank of England said on Friday.

Reporting by Saikat Chatterjee

Dollar retreats vs. yen after White House shake-up report

TOKYO (Reuters) - The dollar fell versus the yen on Friday, after a report that U.S. President Donald Trump would remove his national security adviser added to concerns about recent White House personnel changes and what that meant for policy.

Trump has decided to replace his national security adviser, H.R. McMaster, the Washington Post reported on Thursday.

Earlier this week, the U.S. currency took a hit after Trump dismissed Secretary of State Rex Tillerson as investors grew increasingly nervous about the direction U.S. policy might now take following a series departures by key members of staff.

The dollar was 0.4 percent lower at 105.940 yen after briefly touching 106.380.

The greenback was down about 0.8 percent on the week against the safe haven yen, which was boosted earlier as a political scandal engulfed Japanese Prime Minister Shinzo Abe, casting doubts on the sustainability of his economic stimulus policies.

“The best explanation for the impact the ongoing personnel changes taking place in the White House is that the dollar stands to weaken as it gets easier for President Trump to pursue protectionist policies,” said Daisuke Karakama, chief market economist at Mizuho Bank in Tokyo.

The yen, which tends to gain in times of risk aversion, also advanced against other currencies in the wake of the latest shake-up in the White House.

The euro was down 0.35 percent at 130.410 yen, the Australian dollar slipped 0.2 percent to 82.56 yen and the New Zealand dollar lost 0.8 percent to 76.76 yen.

The New Zealand dollar’s losses against the yen in turn dragged it down versus the U.S. dollar, with the kiwi shedding 0.4 percent to $0.7245.

The dollar managed to hold gains against a basket of peers, as recent concerns about the currency arising from trade tensions eased slightly and next week’s Federal Reserve policy meeting came into focus.

The dollar index versus a group of six major currencies was little changed at 90.081 after climbing 0.5 percent the previous day.

Prior to the overnight bounce, the index had fallen for three straight sessions as fears of a global trade war grew amid signs of rising U.S. protectionism.

“U.S. protectionism is a key factor, but it is also a theme with a long timeframe,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

“The market perhaps reacted excessively and the dollar was oversold, and now we are seeing those moves being balanced out as participants turn their focus on other events.”

The two-day Federal Open Market Committee meeting begins on March 19 at which the U.S. central bank is expected to raise interest rates for the first time this year.

The euro was steady at $1.2309 after declining 0.5 percent overnight. The common currency was little changed on the week, failing to make much headway against its struggling U.S. peer as the European Central Bank has stressed that its exit from easy monetary policy would be very slow.

The Canadian dollar retreated to an eight-month low after soft housing data reinforced views that the Bank of Canada could slow down the pace of its interest rate hikes.

The loonie also came under pressure after President Trump’s comments on commerce with Canada renewed trade concerns.

The Canadian dollar was little traded at C$1.3058 per dollar after reaching C$1.3072, its weakest since late June 2017.

Reporting by Shinichi Saoshiro

Asian shares slip as new U.S. political worries sour mood

TOKYO (Reuters) - Asian stocks slid on Friday as reports of more chaos in the Trump administration tested investors’ nerves, already frayed by fears that U.S. tariffs could hurt the global economy and trigger a trade war.

European stock futures point to a weaker start in Europe, with futures of Britain's FTSE and France's Cac down 0.1 percent.

MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.2 percent in early trade. Japan's Nikkei was down 0.6 percent.

On Wall Street, the S&P 500 edged 0.08 percent lower on Thursday, marking its first four-day losing streak of 2018. The Nasdaq Composite  dropped 0.2 percent.

U.S. shares hit a session low soon after the New York Times reported that U.S. Special Counsel Robert Mueller had issued a subpoena for documents related to U.S. President Donald Trump’s businesses.

The Washington Post, meanwhile, reported that President Donald Trump has decided to remove H.R. McMaster as his national security advisor.

The news came just days after following the recent departure of two key officials, former Secretary of State Rex Tillerson and top economic advisor Gary Cohn, from the Trump administration.

The developments, together with the report earlier this week that Trump is seeking to impose tariffs on up to $60 billion of Chinese imports, cemented investor concerns that the administration is increasingly leaning towards protectionism.

White House trade adviser Peter Navarro has said that Trump would in coming weeks get options to address China’s “theft and forced transfer” of American intellectual property as part of the investigation under Section 301.

“The key here is whether the main battle ground of the trade war will reach IT digital products. In this sector, there is division of labour in the supply chain, with each country having specialised products,” said Hiroshi Watanabe, economist at Sony Financial Holding.

“Investors have been thinking the U.S. would not take such steps as that would harm itself. But the fall in high-tech shares yesterday may suggest that investors have begun to take such risks into account,” he added.

Fears that the tariffs could disrupt synchronised global growth dwarfed recent strong economic data, including a fall in U.S. jobless claims.

Any disruptions to the information sector will cost investors particularly dearly given the sector has been the main engine of the global share rally during the past decade.

“It seems as if for Trump, only ‘America First’ policies are left to boost his popularity and to get re-elected,” said Hiroko Iwaki, senior strategist at Mizuho Securities.

“It is hard to expect political uncertainties to disappear soon. That will underpin bonds,” she added.

U.S. Treasuries yield stood little changed at 2.822 percent in Asia after having hit a near two-week low of 2.797 percent on Thursday.

In contrast, short-term bond yields rose as investors braced for a widely expected rate hike by the Federal Reserve next week, with the two-year yield hitting a 9 1/2-year high of 2.295 percent.

In Europe, the German Bund yield hit a six-week low of 0.566 percent.

Political uncertainties are mounting in Japan, where Prime Minister Shinzo Abe is under pressure for suspicions of a cover-up in a controversial land sale.

In the currency market, rising risk aversion pushed the dollar lower against the safe haven yen to 105.94 yen JPY= down 0.4 percent.

The euro was little changed at $1.2303 EUR=, having slipped 0.5 percent the previous day.

Subdued risk sentiment kept the dollar supported against riskier currencies, such as commodity-linked currencies and emerging market currencies.

The Canadian dollar CAD=D4, which has been hit also by worries Trump may pull out from NAFTA, hit a nine-month low of C$1.3072 to the dollar.

The Australian dollar AUD=D4 dropped to as low as $0.7771, its lowest level in 10 days.

“The Australian dollar had been resilient during this month’s tensions, suggesting that the very bullish global growth narrative is yet to be really shaken,” said Westpac senior currency analyst Sean Callow.

“But should the U.S.-driven trade tensions deepen in the months ahead, the Australian dollar is likely to be one of the currencies hardest hit, given Australia’s current account deficits and its heavy reliance on China for commodity exports.”

Oil prices were little changed after ending choppy Thursday trade higher as the International Energy Agency said global oil demand is expected to pick up this year, but warned supply is growing at a faster pace.

Brent futures stood flat at $65.11 per barrel.

Reference: Hideyuki Sano

Thursday, 15 March 2018

Asia stocks sag, bonds advance amid simmering trade worries

TOKYO (Reuters) - Asian stocks sagged on Thursday while government bonds attracted safe-haven demand amid mounting investor concerns that growing trade tensions will hurt the global economy.

Spreadbetters expected European equities to fare slightly better at the open, with Britain’s FTSE starting unchanged, Germany’s DAX gaining 0.3 percent and France’s CAC rising 0.25 percent..

MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.13 percent.

The Asian markets took their cues from Wall Street shares, which fell for the third straight session overnight after U.S. President Donald Trump sought to impose fresh tariffs on China, intensifying fears of a trade war.

“While U.S. and Chinese officials could be negotiating behind the scenes in an attempt to prevent the situation from worsening, the markets will remain concerned as long as President Trump seems to be going his own way on the matter,” wrote Xiao Minjie, China-focused senior economist at SMBC Nikko Securities in Tokyo.

Boeing Co, seen as particularly vulnerable to retaliation from U.S. trade partners, fell 2.5 percent, leading the losers on the Dow.

Shanghai lost 0.3 percent, Hong Kong’s Hang Seng was flat and Australian stocks fell 0.25 percent. Japan’s Nikkei erased earlier losses and crawled up 0.12 percent.

Japan’s equity market “has been holding up relatively well, but it will have to decline some more if U.S. shares deepen their losses,” said Yutaka Miura, senior technical analyst at Mizuho Securities in Tokyo.

“Bargain hunters buy steadily at price dips, but most participants are wary of chasing highs amid lingering uncertainty about trade and politics.”

The benchmark 10-year Treasury yield dipped to 2.806 percent and headed for a fourth day of declines amid rising diplomatic tension between Britain and Russia, soft U.S. retail sales data and concerns over Washington’s political and trade issues.

The spectre of a trade war also boosted demand for European debt. The German 10-year bund yield was at 0.594 percent after falling to a 1-1/2-month low of 0.583 percent. Yields on British gilts and French government bonds were also lower.

In the currency market, the dollar came under pressure again after the greenback managed a modest bounce overnight following three days of losses.

The dollar index, which measures it against a basket of six major currencies, was a shade lower at 89.698. So far this week, it has fallen about 0.5 percent, dogged by trade tensions and perceived political turmoil in Washington.

The euro edged up 0.05 percent to $1.2373 after being pulled back from a six-day high of $1.2413 when European Central Bank President Mario Draghi on Wednesday struck a dovish tone on monetary policy.

The yen, often sought in times of risk aversion, gained against a variety of peers.

The dollar slipped 0.35 percent to 105.960 yen after taking a hit the previous day on Trump’s firing of U.S. Secretary of State Rex Tillerson.

The euro fell 0.4 percent to 131.045 yen and the Australian dollar shed 0.5 percent to 83.36 yen .

Oil prices held steady, supported by healthy global demand but capped by a relentless rise in U.S. production that is undermining efforts led by producer cartel OPEC to cut supplies and prop up markets.

Brent crude futures were flat at $64.89 per barrel .

Safe-haven gold rose, with spot prices gaining 0.1 percent to $1,326.16 an ounce.

Reporting by Shinichi Saoshiro

Investors still in love with growth stocks risk losing out on value

NEW YORK (Reuters) - A long rally in technology stocks has left investors thirsting for more, but that could be a mistake as the strengthening U.S. economy points to better value in other stocks.

Heavyweights like Apple, Alphabet and Facebook have especially helped growth indexes in the past year rise more than value indexes, which right now are heavily weighted in financials.

Tech so far in 2018 is the best-performing sector too, leading the recovery from the market’s steep selloff in early February, with the Nasdaq hitting record highs again in recent sessions.

That’s reflected in the performance of major benchmarks for portfolio managers, including the Russell 1000 growth index, up 6.1 percent so far this year, compared with the Russell 1000 value index, down 0.5 percent since Dec. 31.

But some money managers are betting that trend may have gone on for too long. They argue that value stocks, which tend to have lower valuations, will look especially appealing relative to growth as the economy accelerates above its historic growth rates.

“That growth has continued for as long as it has and as lopsided as it is doesn’t mean the world has changed. It means we’re overdue for the pendulum to swing back to value,” said David Katz, chief investment officer at Matrix Asset Advisors in New York.

Growth and value are two classic approaches to investing, with growth investors typically searching for companies that have higher profit growth and margins, while value investors look for stocks that seem undervalued.

A shift from growth to value could come slowly.

Based on Thomson Reuters Lipper data, so far in 2018, U.S. fund investors have been pulling more money out of value funds than growth.

CLS Investments Chief Investment Officer Rusty Vanneman, who has already shifted to favoring value over growth, said investors tend to chase performance, and “tech names have been the glamor names.”

To be sure, many tech stocks do well when the economy improves, and every sector has stocks in both value and growth.

Katz thinks banks, energy and some stocks in health care, including Gilead Sciences, make good value buys right now.

Helping the argument for value, some strategists say, is a robust economic expansion in the United States. The economy is also being given additional fiscal stimulus through sweeping changes to the tax law approved by Congress late last year, including a reduction in the corporate tax rate.

Growth stocks mostly have outperformed value since the bull market began nine years ago and far outpaced them last year, when the S&P technology index rose nearly 37 percent compared with the S&P 500’s gain of 19.4 percent.

In 2017, the Russell growth index rose 28.4 percent versus a gain of 10.9 percent in Russell value.

“It’s definitely more difficult to find the proper risk-reward ratio in growth right now,” said Alan Lancz, president of Alan B. Lancz & Associates Inc., an investment advisory firm, based in Toledo, Ohio.

“It’s a valuation argument. Growth has done phenomenally and the valuations reflect that,” said Ernesto Ramos, head of quantitative equity strategy at BMO Global Asset Management.

Multiples have risen “across the board,” said Michael O’Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut. But, he said, “if everything is expensive, value offers a higher margin of safety.”

Financials, which benefit from higher interest rates and would get a boost from reduced regulations that are expected under the Trump administration, have the biggest weighting in the Russell value index, accounting for about 28 percent of the index, according to Thomson Reuters data.

Technology as a sector has the biggest weighting in the Russell Growth 1000 index, accounting for roughly 39 percent.

JPMorgan Chase, Berkshire Hathaway, Exxon Mobil, Bank of America and Wells Fargo represent the biggest weightings in the Russell 1000 value index, while Apple, Microsoft,, Facebook and Alphabet are the biggest weightings in Russell 1000 growth.

Besides telecommunications, financials have the lowest valuation of any S&P 500 sector, trading at about 13.9 times forward earnings compared with technology, which has among the highest, at 19.2 times forward earnings, according to Thomson Reuters data. The benchmark S&P 500 is trading at 17.3 times forward earnings.

With value, “you’re basically trading tech exposure for financials exposure,” Ramos said.

Reporting by Caroline Valetkevitch

Wednesday, 14 March 2018

Asian shares, dollar fall as U.S. trade fears eclipse strong China data

SYDNEY (Reuters) - Shares faltered and the dollar skidded on Wednesday as investors fretted over the threat of new U.S. tariffs on Chinese imports, brushing aside data that showed the Asian economy got off to a solid start in 2018.

Investor appetite for risk was also hit by U.S. President Donald Trump’s move to fire his Secretary of State, regarded as a moderate in his administration, reinforcing market uncertainty about Trump’s future policies.

In a sign the equity market sell-off would extend elsewhere, S&P E-Mini futures were down 0.1 percent while FTSE futures slipped 0.3 percent.

MSCI’s broadest index of Asia-Pacific shares outside Japan stumbled 0.7 percent, retreating from a 1-1/2 month high on Tuesday, with the technology sector the biggest drag.

Japan's Nikkei .N225 dropped 0.8 percent. China's SSE Composite index and the blue-chip CSI 300 fell 0.5 percent each.

The MSCI Asia ex-Japan IT index declined 0.5 percent as Trump sought to impose tariffs on up to $60 billion against information technology, consumer electronics and telecoms.

Large Asian technology stocks such as LG Display, Tencent Holdings and Taiwan Semiconductor were all down by more than 1 percent.

“A full-on global trade war is unlikely but there may not be much peace on the trade front either,” said Sydney-based AMP Chief Economist Shane Oliver. “A U.S.-China trade war is the main risk.”

Investors suspect policymakers who favour protectionism will also seek to use the currency as a trade weapon, if not overtly then through benign neglect.

As news from the United States dominated, the market shrugged off stronger-than-expected data from China which showed the country’s industrial output expanded at a surprisingly faster pace at the start of the year. Fixed asset investment also handily beat forecasts, while retail sales improved from December.

“The latest Chinese economic data is very encouraging,” said Craig James, Sydney-based chief economist at CommSec.

“The economy is well placed to weather any increase in U.S. tariff rates. In fact, the Chinese statistical bureau is tipping ‘relatively fast growth’ for both exports and consumption in 2018.”

Still, investors were inconsolable and followed overnight losses on Wall Street with the Dow off 0.7 percent, the S&P 500 down 0.6 percent and the Nasdaq Composite falling 1.0 percent.

The selling intensified after Trump dismissed Tillerson following a series of public rifts over policy on North Korea, Russia and Iran. He was replaced with loyalist CIA Director Mike Pompeo.

The move comes only days after the exit of White House economic advisor Gary Cohn who was a strong proponent of free trade.

“Tillerson’s departure has left some worrying that it provides a green light to those in the office pushing for more protectionist measures,” analysts at ANZ Bank said in a note to clients. “Protectionism is on the rise.”

Since Trump took office in 2017 as many as 35 senior officials from his administration have walked out, including Tillerson, according to Citi.

Tillerson’s dismissal and the risk of new import duties on China coincided with subdued U.S. consumer price data on Tuesday with annual core inflation, at 1.8 percent, meeting expectations.

The in-line reading should have been positive for risky assets as it was the fear of a pick-up in inflation and in-turn faster U.S. rate hikes that had hit global shares in early February.

But the inflation data did little to move market expectations of Fed rate rises with an increase next week now fully priced-in.

All that put together meant dollar weakness across a basket of currencies  It eased a tad to 106.5 yen. JPY=

The yen did dip briefly after minutes of the Bank of Japan’s January meeting showed most policymakers shared the view that the central bank should “persistently” pursue powerful monetary easing.

The euro rose overnight to edge towards a recent one-month top of $1.2446 EUR=. It was last at $1.2405, while the pound GBP= was firmer at $1.3989.

In commodities, oil prices were mixed U.S. crude  up 2 cents at $60.73. Brent fell 10 cents to $64.54.

Spot gold XAU= was a touch firmer at $1,327.82 an ounce.

Reporting by Swati Pandey

Rookie crypto investors look past risks, flock to London show

LONDON (Reuters) - Dozens of stallholders, pitching anything from a happy retirement to commercial property to the future of electronics, set up shop in central London last weekend to pitch their wares.

The companies and their salesmen were not there to part ways with the actual product, however. They just wanted to encourage buying into the digital coin craze that is raising billions of dollars.

At what organisers claimed to be Britain’s first large-scale“Crypto Investor Show”, attendees were looking to get in on the next initial coin offering (ICO).

The talk of Silicon Valley, ICOs are a mostly unregulated funding mechanism for start-ups to raise capital by creating and then issuing their own virtual coins or tokens. Last year, they raised a record sum as interest in cryptocurrencies like bitcoin surged.

“I came here to learn about ICOs. You have to do your research, but I would invest, it’s the upcoming thing,” said 30-year-old Shahzad Anwar, who installs electric charging points and had travelled down from the central England town of Solihull with his brother to attend.

“To me, stocks and shares and bonds are over, they are done,” he said, as attendees listened to a pitch at a nearby stall for an ICO wanting to raise tens of millions of dollars to build and race a supercar. Another promised to build a network of rest homes for the elderly.

Regulators say ICOs are highly speculative and investors should be prepared to lose everything. Unlike stocks, most ICOs do not confer ownership rights in the underlying business, just the possibility that the tokens will be worth more in future.

Supporters say ICOs are revolutionising the capital-raising industry, a crowdfunding alternative that gives ordinary people the chance to invest in start-ups, normally the preserve of the venture capitalist elite.

From circulating on tiny online chatrooms a few years ago, cryptocurrencies and ICOs have moved to the mainstream, with public advertising common.

Some companies have pushed back, however. Facebook said it would ban all crypto adverts because of the risks to investors. Twitter said it was taking measures to prevent cryptocurrency-related accounts from running scams on its platform.

London regularly hosts conferences on blockchain, the technology underpinning cryptocurrencies, where tech wizards exchange ideas, but the London show was geared towards the general public as well as experts.

The crowds arrived, some families for a day out, touring the stalls and listening to panelists. As well as marketing, there were sessions that discussed the risks.

Several attendees who worked in the industry said they were disappointed with the ICOs on offer, with staff hired for the day to hand out flyers and with little understanding of blockchain technology, or if it was even relevant to their idea.

“Don’t fall for some of the marketing out there ... [You have to ask] is it actually solving a problem or is it just making one up?” said Linda Leaney at Globcoin, which claims to be a stable cryptocurrency backed by global currencies and gold.

One Leeds-based company, offering a token backed by commercial property, crypto trading and the founder’s online discount shopping platform, said it had raised $4 million in seed investment, and was targeting $10 million, with bonus tokens and referral awards for attendees that emailed their details.

Nearby, one programmer and salesman after another took to a small stage to explain their business. No company promised anyone a specific financial return, and aside from the price of each token and early-bird discounts, they stuck to talking up their product.

Sam Smit, a 34-year-old electronics engineer from Horsham in southern England, is a self-styled“dirty flipper” - someone who buys a token at the pre-ICO stage before token sales are opened to the general public, then sells them when they begin trading on an exchange.

“Have you seen `Wolf of Wall Street’? This is the same, pump and dump!” he said, referring to the 2013 film about the stock broker and convicted fraudster Jordan Belfort.

“People here are illiterate idiots. Often after the pre-ICO stage, it’s already too late to buy,” he said - while admitting that he had lost around $400,000 in January when cryptocurrency prices slumped.

Reference: Tommy Wilkes

Dollar struggles after Tillerson departure strikes down recovery

TOKYO (Reuters) - The dollar wallowed against the yen and other major currencies on Wednesday after the sudden dismissal of U.S. Secretary of State Rex Tillerson killed off an earlier bounce in the currency.

U.S. President Donald Trump fired Tillerson on Tuesday after a series of rifts over policy on North Korea, Russia and Iran, replacing his chief diplomat with loyalist CIA Director Mike Pompeo.

It was a repeat performance for the currency market and the dollar, which declined a week ago when the resignation of White House economic advisor Gary Cohn undermined investor confidence in the greenback.

The dollar was down 0.15 percent at 106.440 yen , having slipped overnight from a two-week high of 107.300 reached after wariness over a political controversy in Japan waned slightly.

The greenback also lost a bit of traction after February U.S. inflation data out on Tuesday matched expectations, suggesting the Federal Reserve remained on track to raise interest rates at a gradual pace.

Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo, said comings and goings in the White House were becoming something of an everyday occurrence and that dollar’s reaction was likely to become more limited each time.

“For the dollar to rise above 107 yen again, it may need a clarification of the ongoing political ‘scandal’ in Japan in addition to a hint by the Fed at this month’s meeting that it might accelerate the pace of rate hikes,” Yamamoto said.

The yen had risen against the dollar at the start of the week as a political crisis engulfed Japanese Prime Minister Shinzo Abe and his close ally, Finance Minister Taro Aso.

The Japanese currency advanced as the controversy over alleged cronyism in a government land sale raised doubts about Abe’s ability to continue pursuing his Abenomics policies, which include aggressive monetary easing.

The Fed holds a two-day policy meeting starting on March 20 and the central bank is widely expected to raise interest rates for the first time this year.

Tracking a decline in U.S. debt yields, the dollar index against a basket of six major currencies slipped to a six-day low of 89.565.

The index managed to cling above 89.407, the low point for March set last Wednesday in the wake of Cohn’s exit.

“The dollar has not declined very much despite recent negative factors as sentiment is showing signs of recovering globally, with words like Goldilocks being mentioned again,” said Shusuke Yamada, chief Japan FX strategist at Bank of America Merrill Lynch.

The February U.S. non-farm payrolls report released on Friday pointed towards not too hot nor too cold “Goldilocks” conditions. The report showed a strong increase in employment but at the same inflation fears were moderated by a slowdown in earnings growth.

The euro extended an overnight bounce and was up 0.15 percent at $1.2407 , its highest in six days.

The pound rose about 0.2 percent to a two-week high of $1.3996.

The Australian dollar added 0.1 percent to $0.7870 and in reach of a two-week peak of $0.7898 scaled the previous day on robust business indicators.

Reporting by Shinichi Saoshiro

Yen clings to gains as scandal clouds Abe's outlook

TOKYO/SINGAPORE (Reuters) - The yen held firm against the dollar on Tuesday as a political scandal engulfing Japanese Prime Minister Shinzo Abe’s government raised doubts about his ability to continue to pursue his economic policies, including monetary easing.

The yen traded at 106.44 per U.S. dollar, after gaining 0.4 percent the previous day as Abe’s cronyism scandal attracted fresh attention from market participants.

The Ministry of Finance admitted on Monday it altered documents related to a discounted sale of state-owned land to a school operator with ties to Abe’s wife.

The suspected cover-up could slash Abe’s ratings and dash his hopes for a third term as leader of his Liberal Democratic Party (LDP) in LDP leadership vote in September.

That has cast doubts over Abe’s signature reflationist polices, which he’s pushed since his election in 2012 and include efforts to cheapen the yen.

Although such doubts have lent support to the yen, the concerns over Japanese political risks have had a relatively minor effect on wider markets so far, said Stephen Innes, head of trading in Asia-Pacific for Oanda in Singapore.

“I’m not sure if that’s going to be enough to get us out of this current little risk revival mode that the market is in,” Innes said.

“We’d have to see a further escalation ... for me to get really excited,” Innes said.

Other major currencies were little changed with the U.S. CPI data due at 1230 GMT seen as a key focus for the day.

The median forecasts by economists polled by Reuters points to annual core CPI inflation of 1.8 percent in February, which would be flat from January.

A higher reading could stoke expectations that the Federal Reserve will likely raise interest rates four times, rather than three times, this year.

A rate hike at its upcoming policy meeting on March 20-21 has been long considered a done deal while another increase in June is almost fully priced in.

Yet traders are also mindful that the prospects of more U.S. rate hikes, while theoretically positive for the dollar, may not necessarily lift the U.S. currency, given other factors weighing on the greenback.

One big issue is U.S. President Donald Trump’s tariff on steel and aluminium, which many investors worry could trigger retaliatory moves by U.S. trade partners and hurt the economy.

On diplomatic front, the surprise announcement last week that Trump plans to meet North Korean leader Kim Jong Un, boosted risk appetite, but North Korea has stayed mum.

Another point to watch is the health of the global economy, said Roy Teo, an investment strategist for LGT Bank in Singapore.

If forthcoming Purchasing Managers’ Index (PMI) surveys bolster optimism about the outlook for global growth, that could whet investor demand for riskier assets, Teo said.

“If PMIs continue to firm, I think the dollar should be on the backfoot,” he added.

The euro traded at $1.2335, having lost steam since Thursday when European Central Bank President Mario Draghi struck a cautious tone on the euro zone economy.

While acknowledging faster growth in Europe, Draghi said regional inflation remained subdued and rising protectionism is a risk, leading traders to think that the ECB will advance slowly in winding back its stimulus.

Reference: Hideyuki Sano, Masayuki Kitano

Tuesday, 13 March 2018

World stocks inch higher as investors await U.S. inflation data

LONDON (Reuters) - World shares inched higher on Tuesday, eking out limited gains as investors kept a wary eye on a U.S. inflation reading later in the day that could offer clues on the pace of Federal Reserve interest rate hikes this year.

The MSCI All-Country World index of stocks, which tracks shares in 47 countries was up less than 0.1 percent.

The index has recovered about half its losses during a violent shakeout in stocks in February. The selloff came on the back of strong U.S. wage numbers, which investors feared might feed into inflation and push the U.S. central bank towards a faster pace of monetary tightening.

“Today’s CPI inflation data is likely to add further color to the US inflation picture, however it probably won’t add any further clarity to the overall inflation outlook puzzle, given that the Fed doesn’t use CPI as its inflation benchmark,” said Michael Hewson, chief markets analyst at CMC Markets in London.

“Nonetheless it is still a useful gauge in establishing when and how the price pressures we’ve been seeing build up in US supply chains start to filter down into the wider economy.”

While the consumer price index is a popular barometer of economic health, it is not the primary gauge the Fed uses to determine whether it is meeting its mandate of price stability. Instead, the Fed uses the personal consumption expenditure (PCE) index.

European shares opened positive, with the pan-European STOXX 600 gaining 0.1 percent. Italian and Spanish stocks rose 0.3 to 0.4 percent, while Britain's FTSE  was a laggard, down 0.1 percent.

Earlier in Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.2 percent after spending much of the day swerving in and out of negative territory.

The index surged 1.5 percent on Monday following firm U.S. jobs numbers on Friday, while low wage growth eased concerns about inflation and faster central bank rate hikes.

But a mixed performance by U.S. shares overnight tempered the rally.

The S&P 500 and the Dow slipped on Monday as the U.S. tariffs signed into law last week weighed on industrials, while a rise in tech stocks boosted the Nasdaq  to a new record high.

In currencies, the Japanese yen fell over half a percent to a two-week low against the dollar, pressured by a political scandal engulfing Japanese Prime Minister Shinzo Abe’s government. It also lost ground to the euro.

The yen tends to suffer in an environment when riskier and higher-yielding assets are bid but Morgan Stanley strategists said in a note that a further deterioration in the political situation that affected the position of Abe, could see the yen“forcefully return towards its previous upward trend.”

The dollar index which measures the greenback against a basket of currencies, was up 0.2 percent.

“The broader story remains that of U.S. monetary policy normalization in the backdrop of an improving economy and a further decline in currency market volatility would only fuel more risk taking appetite,” said Commerzbank’s FX strategist Thu Lan Nguyen.

Slovakia’s 10-year bond yield rose as much as five basis points and the cost of insuring exposure to its debt hit the highest in almost three months as the country’s government inched towards collapse.

Slovak Prime Minister Robert Fico’s government moved closer to collapse on Monday after his junior coalition partner called for early elections amid a political crisis sparked by the killing of a journalist.

The benchmark 10-year U.S. Treasury note yield stood little changed at 2.879 percent.

In commodities, crude oil prices staged a recovery after sliding on concerns over rising U.S. output.

U.S. crude futures were up 0.2 percent to $61.51 per barrel. Brent also rose 0.2 percent to $65.08 per barrel.

Spot gold fell 0.2 percent to $1,318 per ounce.

Reporting by Ritvik Carvalho

Wall Street bounces higher as chip stocks gain

(Reuters) - U.S. stocks advanced on Monday, with gains in shares of chipmakers and technology giants helping Wall Street extend last week’s rally that was powered by U.S. jobs data.

Gains in Apple, Amazon and chipmakers Broadcom and Micron Technology drove the S&P 500 higher.

Broadcom rose 2.9 percent following report that Intel was considering a possible bid for the company.

General Electric rose 2.2 percent and was the biggest boost to the Dow.

The advances followed a near 2 percent gain for the main indexes on Friday after data showed sluggish wage growth in February, easing concerns about the Federal Reserve moving too fast on interest rate hikes.

“The market was particularly optimistic that wage growth wasn’t too hot for fear of inflationary concerns,” said Andre Bakhos, managing director at New Vines Capital LLC in Bernardsville, New Jersey.

Traders of U.S. short-term interest-rate futures kept bets the Federal Reserve will stick to three rate hikes this year.

A month ago, the markets were gripped by fears of higher wages leading to price pressures, triggering a selloff that dragged the main indexes to correction territory.

However, the S&P and the Dow have nearly reclaimed those losses. Rapid gains in technology stocks have already powered the Nasdaq  back to its record levels.

At 9:35 a.m. ET, the Dow Jones Industrial Average was up 0.23 percent at 25,394.24. The S&P 500 rose 0.17 percent at 2,791.32 and the Nasdaq Composite gained 0.25 percent to 7,579.83.

Last week’s gains were also supported by U.S. President Donald Trump’s softer stance on his decision to impose import tariffs on steel and aluminum by exempting Canada and Mexico.

Investors will pore over the next round of data on consumer prices and retail sales due this week for signs of rising price pressure.

Ten of the 11 major S&P sectors were higher, led by 0.62 percent gain in consumer discretionary stocks.

Oclaro jumped 25 percent and was the most traded stock after laser and optical fiber specialist Lumentum Holdings said it would buy the optical components producer for $1.7 billion. Lumentum’s shares rose 3.8 percent.

Advancing issues outnumbered decliners on the NYSE by 1,592 to 877. On the Nasdaq, 1,509 issues rose and 860 fell.

Reporting by Sruthi Shankar

Monday, 12 March 2018

Sterling rises on struggling greenback, flat vs euro

LONDON (Reuters) - Sterling rose on Monday, extending its rise from last week as a revival in risk appetite prompted investors to load up on the British currency though concerns over Brexit progress at an EU summit later this month capped gains.

Strong U.S. job growth data on Friday was counterbalanced by slower increases in wages, resulting in money market traders sticking to bets that the Fed would raise interest rates three times this year, encouraging investors to add bets against the struggling greenback.

The British currency rose 0.2 percent to $1.3870 against the dollar, broadly in line with other currencies but is still some way below a post-Brexit referendum vote high of $1.4346 in late January.

But against the euro, sterling was flat at 88.84 pence as traders were worried that Britain and EU officials would fall short of securing a transition arrangement at a March 22-23 summit as differences have grown in recent days.

“We expect euro/sterling to be very volatile in the run up to the summit due to the conflicting headlines we have seen in recent weeks and as such we remain cautious on the British currency’s outlook,” said Morten Helt, a currency strategist at Danske Bank.

Latest positioning data also indicated an undercurrent of nervousness about the British currency with net long sterling positions slashed to their lowest since early December.

Finance minister Philip Hammond looks set to announce Britain’s smallest budget deficit since 2002 this week but he is still likely to resist calls to loosen his grip on public spending for now.

Reporting by Saikat Chatterjee

Asia shares rally as U.S. job data revive risk appetite

SYDNEY (Reuters) - A relief rally swept across Asian share markets on Monday after the latest U.S. jobs report managed to impress with its strength while also easing fears of inflation and faster rate hikes, a neat feat that whetted risk appetites globally.

MSCI’s broadest index of Asia-Pacific shares outside Japan  climbed 1.3 percent, poised for a third session of gains.

South Korea .KS11 rose 1 percent while Australia's main index added 0.7 percent, boosted by mining shares on news that Australia could be exempt from new U.S. trade tariffs on steel and aluminium imports.

E-Mini futures for the S&P 500 put on another 0.3 percent.

Japan's Nikkei .N225 jumped 1.2 percent, showing little immediate reaction as Prime Minister Shinzo Abe came under renewed fire over suspicions of cronyism involving the sale of state-owned land.

Inflation worries faded on Friday after U.S. data showed nonfarm payrolls jumped by 313,000 jobs last month, but annual growth in average hourly earnings slowed to 2.6 percent after a spike in January.

The pullback in wages tempered speculation the Federal Reserve would project four rate hikes - or dot plots - at its policy meeting next week, instead of the current three.

“The release threaded the stock needle perfectly, exhibiting strong overall net job adds alongside an increase in the participation rate and tepid wages suggesting labour demand is being met by new entrants into the workforce,” said analysts at JPMorgan in a note.

“In reality though the market is probably reading too much into a single jobs report,” they cautioned.

“A fourth dot on March 21 may have been averted but the labour market is increasingly demonstrating evidence of tightness and this will inevitably translate into upside wage pressure.”

For now, Wall Street was happy to take the data at face value and the Dow jumped 1.77 percent, while the S&P 500  gained 1.74 percent and the Nasdaq 1.79 percent.

On the week, the S&P rose 3.5 percent, the Dow 3.25 percent and Nasdaq 4.2 percent.

The jobs news likewise lifted riskier currencies, including the Mexican peso and Canadian and Australian dollars, while weighing on the safe-haven yen.

Those cross currents left the U.S. dollar a shade lower against a basket of currencies at 89.973 The euro was last up a fraction at $1.2323 EUR=.

The dollar edged down on the yen to 106.38 JPY=, having bounced 0.5 percent on Friday.

Investors had trimmed holdings of yen last week on news U.S. President Donald Trump was prepared to meet with North Korea’s Kim Jong Un, a potential breakthrough in nuclear tensions in the region.

U.S. officials on Sunday defended Trump’s decision, saying the move was not just for show and not a gift to Pyongyang.

“Now the US is back to goldilocks at least for now, the tariffs are less severe, and Kim and Trump are to meet,” said Shane Oliver, Sydney-based chief economist at AMP.

“We still expect more volatility this year as many of these issues have further go run, but the broad trend in shares likely remains up.”

The mix of brisk U.S. economic growth and restrained inflation was a positive one for most commodities.

Spot gold XAU= was steady on Monday at $1,323.61 an ounce.

Brent crude futures rose 7 cents to $65.56 a barrel, after surging almost 3 percent on Friday. U.S. crude futures rose 6 cents to $62.10 a barrel.

Reference: Wayne Cole

Sunday, 11 March 2018

Sterling rallies as dollar hit by wages data

LONDON (Reuters) - Sterling rallied on Friday after a slowdown in U.S. wage growth weakened the dollar and British industrial production data showed the UK’s manufacturing sector continues to expand, albeit slowly.

Traders had earlier pushed the pound slightly lower as markets wait to get more clarity on Britain’s Brexit negotiations with the European Union.

But when the dollar fell as data showed that despite the strongest U.S. jobs growth in 1-1/2 years, wage growth had fallen, the pound pushed higher.

The pound gained 0.4 percent to $1.3874. Sterling also rose against the euro and was up 0.3 percent at 88.85 pence per euro.

“There was some good and some bad [in the industrial data numbers released on Friday] but nothing to scare the horses ahead of the spring statement next week,” said Michael Hewson, chief analyst at CMC Markets. “Sterling is up because of dollar weakness.”

British Finance Minister Philip Hammond on Tuesday gives his half-yearly update on the economy, known as the spring statement.

Analysts said with predictions of a Bank of England interest rate hike for May baked into the price, and ongoing political risks around Brexit negotiations, assessments of the health of the UK economy have taken a backseat for currency investors.

“The market is quite happy for there to be a rate hike in May. With that in the price, it dampens the impact of economic data,” said Jane Foley, FX strategist at Rabobank. “The focus is on politics right now.”

European Council President Donald Tusk said on Thursday the Brexit negotiations risk stalling if Britain does not present a realistic solution for the future of the Irish border, after London rejected an EU fallback proposal last week.

The EU this week also rebuffed Britain’s post-Brexit trade demands and offered banks no special deal, underlining how far the two sides have to go before they can secure a trade accord.

Britain has said it will announce a transition deal - which will buy Britain and the EU time to decide their future relationship - later this month at an EU leaders summit.

But many investors remain sceptical that this can happen so soon. That uncertainty has weighed on sterling after the currency rallied at the start of the year.

Reporting by Tommy Wilkes

Friday, 9 March 2018

Yen slips on hopes for easing U.S.-North Korea tensions

SINGAPORE (Reuters) - The dollar rose versus the safe haven yen on Friday as hopes of a breakthrough in the North Korean nuclear standoff rose after U.S. President Donald Trump showed willingness to accept an invitation to meet North Korean leader Kim Jong Un by May.

A South Korean envoy said in Washington that Trump expressed willingness, and that Kim had expressed commitment to denuclearisation.

“Both the Nikkei and dollar/yen are rocketing higher on encouraging North Korea headlines and improving risk sentiment,” Stephen Innes, head of trading in Asia-Pacific for Oanda in Singapore, said in a note.

“We should expect this news to boost regional market sentiment as well,” he added.

Against the yen, the dollar rose 0.4 percent to 106.66 yen, inching away from a low of 105.24 yen on March 2, the greenback’s weakest level since November 2016.

Japan’s Nikkei share average shot up early in the session, advancing 2.4 percent on news of a possible U.S.-North Korea summit, then cooled to be 0.9 percent higher.

The greenback had gained ground earlier against the yen as some fears of a global trade war receded. Trump imposed import tariffs on steel and aluminium, while softening his stance by announcing exemptions for Canada and Mexico, and leaving open the chance for other countries to obtain their own.

“There are a lot of potential exemptions, so I think safe haven flows into the yen have abated,” said Roy Teo, investment strategist for LGT Bank in Singapore.

The U.S. dollar had tumbled to 16-month lows against the safe-haven yen late last week as concerns about a trade wargripped markets after Trump initially announced his plan for tariffs on all imports of steel and aluminium.

The euro nursed its losses after falling on Thursday as European Central Bank President Mario Draghi, while acknowledging faster growth in Europe, said regional inflation remained subdued and rising protectionism is a risk.

Draghi expressed his view on these issues at his news conference after a central bank policy meeting. It overshadowed the ECB’s dropping of a long-standing pledge to increase its bond purchases if needed, a move that briefly spurred buying of the single currency.

The euro held steady at $1.2310, after falling 0.8 percent on Thursday.

The yen showed little reaction after the Bank of Japan kept its monetary policy steady on Friday, as widely expected.

Later on Friday, market participants will turn their attention to U.S. February jobs data.

Reporting by Masayuki Kitano

Correlation in the Forex Market

An Educational Article

Statistically speaking, correlation is the measured relationship between two units over a series of time. Correlation is measured on a range of -1 (perfect negative correlation) to 1 (perfect positive correlation). 

A positive correlation implies that the two units move in similar directions, the higher the correlation the closer and more accurately these moves are. Conversely, a negative correlation represents opposite movements with a smaller (more negative) number representing a stronger relationship between the opposite movements.
It is important to understand that in the Forex market you are trading currency pairs as a single unit. These pairs consist of two different currencies and are priced based on the value of one currency divided by the other. Technically you are making two trades when you trade any Forex pair. You are buying one currency while simultaneously selling the other. For example: with the AUD/USD you are buying the AUD while selling the USD when you go long the pair. 

So, instead of looking at currency pairs as a single unit like a stock or a commodity, it is more appropriate to look at currency pairs as two separate trades. Viewing forex pairs as two separate trades will help you understand the relationship between other currency pairs, and will help to clarify why there seems to be an outstanding amount of correlation within the Forex market.

Creating Healthy (Forex) Relationships
If you were to compare some of the major pairs in the Forex market, you would immediately notice that many have an uncanny resemblance in their pattern. Below is an example of the EUR/JPY vs. EUR/USD:

The above two pairs move in such a similar manner and show a high level of correlation. There is a simple reason for this and becomes apparent when you break the trades down. In both the EUR/JPY and EUR/USD you are buying the EUR and selling some other currency in a long trade. If you take another look at what you are actually comparing in mathematical form the reason for the strong correlation becomes quite obvious:

 Now take the example of the USD/JPY and EUR/USD:

In this example you see a highly negative correlation. Similarly, to the last example, the driving factor here is the increased appearance of a specific currency. In this case the USD. However, the difference in this case is that you have the currency appearing on opposites ends for each trade. Because one pair is buying and one is selling, you have inadvertently caused a negative relationship. To further illustrate this point, let's assume that the only currency that moves is USD, while the two other currencies (JPY and EUR) remain flat. Now you are effectively comparing the relationship of USD to that of the inverted USD, which is rather useless. Here is the comparison in equation form:

Understanding Correlation in the Forex Market

When comparing pairs in the forex market for correlation, it is usually not wise to have a currency represented more than once. In the comparison of two currency pairs you will have a total of four currencies affecting the relationship. To avoid one currency from being overstated it is vital that all four currencies, regardless of whether they are being bought or sold, only appears once. By doing this you can create unique relationship that will be able to give you a valuable and unique insight in to the relationship of two pairs. Correlation comparison can potentially set you up for new and exciting trading opportunities as well as offer you several unique trading strategies. In order for you to understand and realize these opportunities you must first understand the full breadth of what is being compared.

Reference: Matthew Cherry

Asia shares firm as Trump agrees to meet North Korean leader

SYDNEY (Reuters) - Asian shares pared sharp early gains on Friday ahead of U.S. payrolls data which could hasten Federal Reserve rate hikes, and as some caution set in about the new entente between North Korean leader Kim Jong Un and U.S. President Donald Trump.

Kim has committed to “denuclearization” and offered to hold the first-ever U.S.-North Korea summit, marking a potentially dramatic breakthrough in the North Korea nuclear standoff.

Trump’s aides have been wary of North Korea’s diplomatic overtures because of its history of reneging on international commitments.

“Whether it comes to anything remains to be seen as we have seen this happen several times over the decades,” said Shane Oliver, Sydney-based chief economist for AMP.

“Or maybe its development of nuclear weapons was all just negotiating ploy. At least it will be ‘quiet’ on this front for a while yet.”

The jubilation about the informal alliance did not last long as equity investors booked profits while futures for the S&P 500 and FTSE inched lower.

Japan’s Nikkei was last 0.3 percent firmer, having been up more than 2 percent at one stage. South Korean stocks eased too but were still 1 percent higher.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.6 percent, while Australia firmed 0.3 percent.

“What seems certain is that over the coming 6 to 9 months, unfolding negotiations should ensure greater geopolitical tranquility on the Korean peninsula,” said Aninda Mitra, senior sovereign analyst, BNY Mellon Investment Management.

“The main risk is, of course, Trump mishandles the potential for a breakthrough resulting in even heightened risk of a mishap.”

The mood had already brightened a little after Trump pressed ahead with tariffs but offered conditional exemptions for Canada and Mexico, offering at least the hope that a full-blown global trade war could be averted.

The White House said other countries could apply for exemptions on the 25 percent tariff on steel imports and 10 percent for aluminum, but details were sparse on when they might be granted and under what terms.

Several major trading partners have said they will respond with tariffs or direct action of their own.

“Markets have cheered up a little but exclusions are likely to come with caveats demanding reciprocity - that’s the kind of guy the President is,” said Greg McKenna, chief market strategist at broker AxiTrader.

Rising protectionism was a risk cited overnight by European Central Bank President Mario Draghi following the central bank’s latest policy meeting.

While the ECB did drop its easing bias as some expected, Draghi sounded in no rush to start unwinding stimulus.

The dovish tone was enough to see the euro fade back to $1.2310, having shed 0.8 percent on Thursday. That helped the U.S. dollar firm on a basket of currencies to 90.189.

The dollar gained 0.4 percent on the yen to 106.63, amid the recovery in risk appetite.

There was little immediate reaction to the Bank of Japan’s latest policy meeting where it chose to maintain its massive stimulus campaign unaltered.

Investors will next focus on the U.S. jobs report for February due later in the day. The consensus expectation for average hourly earnings growth for the month is for a 0.2 percent increase, while the headline non-farm payrolls is seen to have grown by 200,000 jobs, according to a Reuters poll.

It was the upbeat jobs data last month that fanned speculation of faster rate rises in the United States, causing a rout in the bond market and hammering world equities.

The Fed is widely expected to raise rates at least three times this year, with some analysts even expecting four.

Elsewhere, oil prices recouped some ground in Asia after slipping overnight. U.S. crude bounced 12 cents to $60.24 per barrel, while Brent crude futures rose 16 cents to $63.77 per barrel.

Spot gold eased 0.3 percent to $1,317.74 per ounce, extending losses into a third session as demand for safe havens lessened.

Reporting by Wayne Cole