ETHICAL CURRENCY DAILY BRIEF
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Daily Brief - 27/01/2020
Reuters: Sterling retreated on Friday after initially strengthening, as some investors still expected an interest rate cut next week even though business surveys pointed to a post-election bounce in the British economy. Analysts said the pound had weakened because traders were taking profits on recent gains in the currency, and because money markets still priced in a 50% chance of a rate cut when the Bank of England meets next Thursday. The ‘flash’ early readings of the IHS Markit/CIPS UK Purchasing Managers’ Index (PMI) showed Britain’s vast services sector returned to growth in January for the first time since August, while a downturn in manufacturing eased. The release was widely anticipated after several BoE policymakers said earlier this month that they would vote for a cut to rates if Britain’s economy did not soon show a marked improvement. That knocked the pound last week, but this week it recovered as a series of business surveys suggested the UK economy could be picking up.
“Expect $GBP traders to profit take on PMI beat. Trade was picking the post dovish BoE comms low last week. Time to de-risk ahead of BoE event next week. MPC won’t cut in Jan on this data (new orders up sharply),” Viraj Patel, an analyst at Arkera said. The composite PMI, which combines manufacturing and services indexes, rose to 52.4 from 49.3, the highest reading since September 2018 and breaking beyond the 50 mark which indicates activity is growing. It easily beat the 50.6 consensus forecast in a Reuters poll of economists. The services PMI rose in January to 52.9 from 50.0, also its highest level since September 2018 and well above the consensus forecast in a Reuters poll of 51.0. Sterling jumped to as high as $1.3180 immediately after the surveys were released before falling back. It was last down 0.2% at $1.3098. It also erased its initial gains versus the euro, and traded flat on the day at 84.255 pence. Money markets currently assign a 50% probability of a rate cut next week, down from a high of 70% on Monday. Economists at Jefferies said that with UK investment having flatlined since the 2016 Brexit referendum while investment had grown in Europe, there was clearly “pent-up demand” for investment. That made a BoE rate rise more likely than a rate cut. “Moreover, there is a fiscal expansion coming down the pipe in the (Britain’s) Budget on 11 March, with potentially a significant regional dimension,” they wrote. “Depending on the scale of the fiscal easing announced...this could also significantly tilt the monetary policy debate later in the year,” they said.
Reuters: The U.S. dollar slipped against the safe-haven Japanese yen on Friday as investors fretted over concerns that a spreading virus from China would curb travel and hurt economic demand. The U.S. Centers for Disease Control and Prevention (CDC) on Friday confirmed a second U.S. case of the new coronavirus from China in a Chicago woman, and said as many as 63 potential cases were being investigated as the sometimes-deadly illness continues to spread around the globe. The newly discovered virus has killed 26 people and infected more than 800. Most of the cases and all of the deaths so far have been in China, where officials have imposed severe restrictions on travel and public gatherings. Against the yen, which tends to draw investors during times of geopolitical or financial stress given Japan’s status as the world’s largest creditor, the dollar was 0.22% lower at 109.24 yen. “The dollar and yen rallied modestly in New York trade on Friday, with safe-haven buying the main driver into the weekend,” Ronald Simpson, managing director, global currency analysis at Action Economics, said in a note. “Nerves were ramped up some as the coronavirus outbreak appeared to have worsened,” Simpson said.
The dollar’s appeal as a safe haven helped boost it near an eight-week high against the euro on Friday. The move was aided by lukewarm European PMI data that added to the broader market conviction that European central bank policymakers will maintain a loose monetary policy for the near future. Euro zone business activity remained lackluster with the IHS Markit’s Euro Zone Composite Flash Purchasing Managers’ Index (PMI), seen as a good gauge of economic health, holding at 50.9 in January but missing the median prediction in a Reuters poll for 51.2. That followed an earlier PMI from Germany, Europe’s largest economy, which showed the private sector gained momentum. The euro was 0.23% lower against the greenback at $1.1027. The survey data comes a day after the European Central Bank did not make any policy change, standing by its pledge to keep buying bonds and, if needed, cut interest rates until euro zone inflation headed back to its goal. Sterling retreated on Friday, after initially strengthening, as some investors still expected an interest rate cut next week even though business surveys pointed to a post-election bounce in Britain's economy. The pound was 0.33% lower against the greenback. The Canadian dollar fell about 0.13% against its U.S. counterpart as the coronavirus outbreak weighed on oil prices.
South African Rand
BDL: The rand gained against major currencies on Friday morning, as investors digested the extent of the outbreak of coronavirus in Asia, with investor appetite improving a little after sentiment was knocked earlier in the week. Global market declined this week amid the fear of the effect of the outbreak and its resulting damage on the world economy. China’s National Health Commission said 25 people have died from the fast-spreading coronavirus, as the total number of confirmed cases in the country rose to more than 880. On Thursday, the World Health Organisation (WHO) said that the outbreak of the coronavirus did not yet constitute a global public health emergency.
The rand has strengthened 0.47% for the week, but has lost 0.96% so far in January. Should it hold on to its gains, it will snap a three-week losing streak against the dollar. As of at 0600 GMT the rand was trading at R14.45 to the dollar, R18.87 to the pound and R15.94 to the euro.
Reuters: The yen rose and the yuan fell in offshore trade on Monday as the death toll in China from the spread of a pneumonia-like virus mounted, raising worries authorities are struggling to contain the outbreak and sparking a bout of risk aversion. Japan’s currency, often sought as a safe-haven in times of uncertainty, rose to the highest in almost three weeks versus the dollar, while the yuan fell to its lowest since Jan. 8. China’s cabinet announced it will extend the Lunar New Year holidays to Feb. 2 to strengthen the prevention and control of the new coronavirus, state broadcaster CCTV reported early on Monday. The holidays had been due to end on Jan. 30. Hong Kong has also banned the entry of visitors from China’s Hubei province, where coronavirus outbreak was first reported in the city of Wuhan, underscoring the difficulty officials face during a peak travel season. Health authorities around the world are racing to prevent a pandemic of the virus, which has infected more than 2,000 people in China and killed 80. There are concerns that tourism and consumer spending could take a hit if the virus spreads further, which would discourage investors from taking on excessive risk. “There is a lot of uncertainty about how much further the virus will spread, and this is behind the moves in currencies,” said Yukio Ishizuki, foreign exchange strategist at Daiwa Securities in Tokyo. “I thought dollar/yen would be supported at 109, but it broke through that, so now the next target is 108.50. This risk-off mood is likely to continue for a while.”
The yen rose to 108.73 per dollar, its strongest level since Jan. 8, before paring gains slightly to trade up 0.3% at 108.95. Japan’s currency also jumped more than 0.5% versus the Australian and New Zealand dollars as worries about the virus drew traders toward safe-haven currencies. In the offshore market, the yuan fell almost 0.5% to 6.9625 per dollar, its weakest since Jan 8. The dollar index against a basket of six major currencies was little changed at 97.830. Traders said market moves could be exaggerated due to low liquidity, because financial markets in China, Hong Kong, Singapore, and Australia are closed for holidays. The virus, which emerged late last year from illegally traded wildlife at an animal market in the central Chinese city of Wuhan, has spread to other countries, including Singapore, South Korea, Canada, Japan, and the United States. China’s National Health Commision confirmed 80 deaths from the coronavirus and 2,744 cases as of end of Sunday. The outbreak has evoked memories of Severe Acute Respiratory Syndrome (SARS) in 2002-2003, another coronavirus which broke out in China and killed nearly 800 people in a global pandemic. Sterling, the euro, and the dollar were subdued as traders awaited the release of economic data and two central bank meetings. The pound was little changed at $1.3070 on the dollar, and 84.45 pence per euro. The Bank of England is closer to cutting interest rates this week than at any time in the last three years when it announces its policy decision on Jan. 30. Growth at end of 2019 slowed to its weakest since 2012, prompting BOE Governor Mark Carney and two other policymakers to speak publicly about the possibility of a rate cut. However, monetary easing is far from certain because other data have shown a pick up in business and consumer sentiment. The dollar was quoted at $1.1034 per euro, little changed on the day but close to its strongest since December. The U.S. Federal Reserve is expected to keep policy on hold at a meeting ending Jan. 29. Data on the U.S. housing market, durable goods, and consumer confidence will be released before the Fed’s decision.
Daily Brief - 24/01/2020
Hong Kong Office
FXStreet: GBP/USD remains below 50% Fibonacci retracement for two weeks in a row. An ascending trend line since early-November acts as strong support. An upside break beyond Wednesday’s high could challenge the monthly top. GBP/USD remains mildly negative while trading near 1.3120 during the Asian session on Friday. The pair took a U-turn from 50% Fibonacci retracement of its November-December 2019 upside on the previous day. Even so, prices carry the 21-day SMA breakout registered on Wednesday. Hence, a daily closing beyond the 45-pip range between 1.3145 and 1.3100, including 50% Fibonacci retracement and 21-day SMA respectively, becomes necessary for the pair to register increased volatility.
61.8% Fibonacci retracement at 1.3054 and an upward sloping trend line stretched since early November at 1.3000 now, can question the sellers during the pair’s downside below 1.3100. Should there be increased selling under 1.3000 mark, December monthly low near 1.2900 will lure the bears. Alternatively, the monthly high surrounding 1.3285 will be the buyers’ choice if prices manage to cross 1.3145. Further, 23.6% Fibonacci retracement and December month top, near 1.3340 and 1.3515, will be in focus during the pair’s rise after 1.3285.
Reuters: The euro hovered near a seven-week low against the dollar on Friday after the European Central Bank was seen as more dovish than expected. The euro stood at $1.1055, touching a seven-week low of $1.1036 hit in U.S. trade on Thursday after the ECB held interest rates steady and launched a broad review of its policy. ECB President Christine Lagarde on Thursday sought to redefine the ECB’s main goal and how to achieve it, as years of the central bank’s experiment with negative interest rates and quantitative easing have failed to deliver targeted inflation levels. Lagarde told a news conference that risks to growth in the euro zone remained tilted to the downside and traders took her overall tone as dovish. Purchasing Managers’ Index (PMI) data from Germany and the euro zone due later on Friday is the next focus for the currency.
FXStreet: USD/JPY is extending the recovery from overnight lows near 109.25. Yen is losing ground despite the upbeat Japanese inflation data. The BOJ minutes reiterated the need for continued stimulus. Coronavirus scale may put a bid under the yen. USD/JPY is flashing green in Asia with yen failing to gain ground on the back of upbeat Japanese inflation data. The pair is currently trading at 109.52, having bounced up from the overnight low of 109.27.
Japan's core consumer price index (CPI) rose 0.7% in December from a year earlier following November's 0.5% rise. The headline CPI rose 0.8%, bettering the forecast of 0.4% by a big margin. The inflation data was released at 23:30 GMT, but so far has done little to strengthen the bid tone around yen. After all, inflation remained well away from the central bank’s elusive 2% target despite the acceleration from the previous month.
The Japanese yen may find love, helping the pair reverse the bounce from 109.26 to 109.53 if the equities remain risk-averse on coronavirus scare. As of Jan. 23, there were 830 confirmed cases in China. The futures on the S&P 500 are currently reporting marginal gains.
Reuters: Stocks made a barely positive start in early Asian trade on Friday after the world’s health body called it a little too early to declare a coronavirus outbreak a global emergency. But worries over rapid spread of the deadly virus kept investors on guard as millions of Chinese travel during the Lunar New Year holiday period. MSCI's broadest index of Asia-Pacific shares outside Japan rose a marginal 0.1%, while Japan's Nikkei stood flat and Australian stocks added 0.4%.
Trade in Asia is already slowing down for the Lunar New Year holiday, with financial markets in China, Taiwan and South Korea closed on Friday. Key indices on Wall Street bounced from lows after the World Health Organisation (WHO) said the latest coronavirus did not yet constitute a global public health emergency. The Nasdaq Composite rose 0.2% to a record closing high, while the S&P 500 added 0.1% and the Dow Jones Industrial Average eased 0.1%. The WHO called a new coronavirus that has killed 18 people in China and infected around 650 globally “an emergency in China” on Thursday, but stopped short of declaring the epidemic of international concern. “Investors are worried that the outbreak of coronavirus will dampen consumption in China when the Chinese economy has been already cooling down,” said Yasuo Sakuma, chief investment officer at Libra Investments.
U.S. West Texas Intermediate (WTI) crude futures were up a marginal 0.05% at $55.61 a barrel, after hitting $54.77 in the previous session, the lowest level since Nov. 20.