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Daily Brief - 13/08/2020

London Office

 

British Pound

 

Reuters: Sterling held above $1.30 on Wednesday, clinging on to recent gains on the back of dollar weakness, which outweighed the impact of a record drop in Britain’s economic output. The British pound continued to be driven by a strengthening euro and a falling dollar, with the pound which weakening against the common currency after holding steady during mid-morning European trading. Kit Juckes, macro strategist at Societe Generale, said sterling/dollar will continue to be determined by the direction of the U.S. currency rather than by economic developments in Britain. Sterling last traded at $1.3047, flat on the day, but close to the five-month high of near $1.32 it reached last week. It fell 0.6% to 90.53 pence against the euro, its weakest since Thursday. The UK economy shrank by 20.4% between April and June, when the country’s coronavirus lockdown was tightest, data showed on Wednesday, representing the largest contraction reported by any major economy so far.


“The direction of the print was never in doubt. The drop-off...may be accounted for, in part, by the timing of the lockdown as compared with other economies,” said Kieran Cleere, Director of Market Risk Solutions at Silicon Valley Bank. June’s GDP data, meanwhile, offered the first window into the recovery as restrictions eased and the economy began to recoup losses, growing 8.7% month-on-month. “The easier post-lockdown economic gains may soon be realised and so markets will be looking to establish how much of this momentum will be sustained,” Cleere said. With Brexit negotiations taking a breather, Britain said on Wednesday its latest round of trade talks with the United States made positive progress in many areas, and that both sides agreed negotiations should continue at pace in the coming months.

 

US Dollar

 

Reuters: The dollar fell against most of its peers on Thursday amid fading hopes for a compromise between Republicans and Democrats over additional stimulus for the U.S. economy. The Australian dollar rose after better-than-expected jobs data eased concerns about a persistent coronavirus outbreak in the country’s second-largest city. The greenback was hampered by a decline in Treasury yields, but analysts say this is likely only a temporary setback because U.S. lawmakers will eventually agree to more stimulus to help the economy recover from the coronavirus. “The dollar needs positive news on stimulus to rise further, but I’m sure we’ll get there, because these politicians can’t go back to their constituencies empty handed,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo. “Once this happens, gains in dollar/yen could be a catalyst for dollar gains against other currencies.” Against the euro, the dollar fell to $1.1804, adding to a 0.4% decline on Wednesday.


The British pound rose 0.15% to $1.3053. The dollar edged lower against the safe harbour Swiss franc to 0.9118. The dollar pulled back from a three-week high to trade at 106.78 yen. The onshore yuan briefly rose to a five-month high before steadying at 6.9421 per dollar as nerves set it before U.S. and Chinese officials meet Saturday to review their Phase I trade deal. President Donald Trump accused congressional Democrats on Wednesday of not wanting to negotiate over a U.S. coronavirus aid package as top Republican and Democratic negotiators traded blame for a five-day lapse in talks over relief legislation. The pandemic has taken a particularly heavy toll on the United States, where it has killed more people than any other country. Millions of U.S. workers have lost jobs, and supplemental federal unemployment benefits expired last month. Market sentiment has swung between optimism and pessimism, but analysts argue that more stimulus is the most likely outcome because without it the U.S. economic recovery could stall. The U.S. dollar index against a basket of major currencies was little changed on Thursday but was still well above the two-year low it reached last week. 

 

South African Rand

 

Reuters: The South African rand extended its gains against the dollar on Wednesday, as political wrangling over a stimulus package for the U.S. economy halted the U.S. currency’s rebound. At 1500 GMT, the rand was 0.73% firmer at 17.3675 per dollar, continuing its recovery after suffering steep losses in the past two weeks. The rand has been under pressure from shifts in investor appetite for emerging market assets as well as weak economic data pointing to a deep recession in South Africa in 2020 due to the impact of the coronavirus pandemic and a slow recovery in 2021. A survey showed on Wednesday that South African business confidence recovered from a 35-year low in July as global economic activity improved, but the measure remained below average. “Due to the fragile economy, the currency remains vulnerable, especially if risk aversion rises again,” said Commerzbank’s emerging market analyst Elisabeth Andreae in a note. “The downside risks to the rand include not only an unfavourable course of the pandemic with further major waves of infection, but also renewed fears of an emerging market crisis or an escalation in U.S.-Chinese relations.”


The Johannesburg Stock Exchange (JSE) rallied for a second day as markets ignored uncertainty over the U.S. stimulus package and focused on domestic events. Higher commodity prices and increased business sentiment domestically helped the market to recoup most of its losses from earlier in the session. There were also reports in local media about a further reopening of the economy in South Africa, which gave a boost to the hospitality sector. The FTSE/JSE All Share Index closed up 0.44% to 57,417 points while the Top 40 companies index went up 0.56% to end the day at 53,127 points. Government bonds weakened, with the yield on the benchmark instrument due in 2030 adding 2 basis points to 9.3%.

 

Global Markets

 

Reuters: Japanese stocks soared to a six-month peak and the dollar was under pressure on Thursday as investors picked positives out of recent economic data and bet on China and the United States sticking with their trade deal at a crucial weekend meeting. MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.1%, while gains in semiconductor makers drove Japan's Nikkei 1.8% higher to a six-month peak. The rally follows Wednesday gains in Europe and on Wall Street - which left the S&P 500 within a whisker of a record closing high. But futures pricing suggests the latest round of optimism might lose steam in the European day. Euro STOXX 50 futures were last down 0.1%, FTSE futures slipped 0.7% and S&P 500 futures were down 0.1%. “People are looking at the glass half full, and testing the waters,” said Bank of Singapore currency analyst Moh Siong Sim. Throughout the week, a selloff in the U.S. bond market, as investors digest the biggest 10-year paper auction, has lifted yields enough to trigger a sharp pullback in gold as well as drop in the yen as flows come in from Japan. At the same time, the number of daily new COVID-19 infections in the United States seems to be stabilising around 55,000 and an unexpected jump in consumer prices last month has seemed to reinforce confidence in recovery.


On Thursday U.S. 10-year yields retraced a touch to 0.6638%, gold steadied at $1,926 an ounce and the dollar was back under pressure against the euro. But the scale and pace of stock market gains is beginning to draw a few worries. Analysts at OCBC in Singpore are concerned that a stress index they launched in April has done nothing but tumble since its inception. “Market stress ... has subsided to such a low level that we start to wonder if we are missing anything,” wrote OCBC economist Wellian Wiranto. “With that in mind, we zoom in on the U.S.-China tensions which might start to feature more prominently,” he said. The next flashpoint is likely Saturday, when top officials meet to review the progress of the Phase 1 trade pact. White House economic adviser Larry Kudlow said this week the deal was “fine right now,” comments which helped the yuan touch a five-month high on Thursday in a sign of market confidence. But China is lagging behind in farm goods and energy purchases and, Bloomberg News reported on Wednesday, will likely raise other areas of two countries’ growing conflict during the trade talks. Elsewhere in currencies, the Australian dollar traded at $0.7161, supported by data showing the economy created three times as many jobs as expected in July. The positive jobs data suggests the economy remains resilient in the face of an ongoing outbreak of coronavirus cases in Melbourne. Across the Tasman Sea, the New Zealand dollar fell slightly to $0.6566. The Reserve Bank of New Zealand will consider more monetary stimulus if there are periods of resurgence in local coronavirus infections and renewed lockdowns in the country, Deputy Governor Geoff Bascand told Reuters on Thursday. New Zealand this week locked down its biggest city, Auckland, and reimposed social distancing rules across the rest of the country as new coronavirus cases were reported, ending a 102-day run of no infections. In commodities oil mostly clung to solid gains made overnight when a drop in U.S. crude inventories spurred hopes that fuel demand is recovering. Brent crude futures LCOc1 were last 0.2% softer at $45.33 a barrel, while U.S. crude dipped by the same margin to $42.60 a barrel. U.S. weekly jobless claims are on the horizon at 1230 GMT and investors expect a modest downtrend to continue.

 

 

 

 

 

 

Daily Brief - 13/08/2020

Hong Kong Office

 

US Dollar

 

Reuters: The dollar fell against most of its peers on Thursday amid fading hopes for a compromise between Republicans and Democrats over additional stimulus for the U.S. economy. The Australian dollar rose after better-than-expected jobs data eased concerns about a persistent coronavirus outbreak in the country’s second-largest city. The greenback was hampered by a decline in Treasury yields, but analysts say this is likely only a temporary setback because U.S. lawmakers will eventually agree to more stimulus to help the economy recover from the coronavirus.

 

Against the euro, the dollar fell to $1.1813, adding to a 0.4% decline on Wednesday. The British pound rose 0.25% to $1.3067. The dollar fell 0.2% against the safe harbour Swiss franc to 0.9105. The dollar pulled back from a three-week high to trade at 106.65 yen. The onshore yuan briefly rose to a five-month high before steadying at 6.9380 per dollar. President Donald Trump accused congressional Democrats on Wednesday of not wanting to negotiate over a U.S. coronavirus aid package as top Republican and Democratic negotiators traded blame for a five-day lapse in talks over relief legislation.

 

The U.S. dollar index against a basket of major currencies fell 0.2% on Thursday in Asia but was still well above the two-year low it reached last week. Elsewhere in currencies, the Australian dollar rose 0.2% to $0.7176, holding onto gains after data showed the economy created three times as many jobs as expected and the jobless rate fell from a 22-year high in July. Across the Tasman Sea, the New Zealand dollar bought $0.6581, stabilising after the country's central bank on Wednesday expanded quantitative easing and flagged the prospect of negative interest rates.

 

British Pound

 

FXStreet: GBP/USD recovers from 10-day EMA while trading near 1.3057, up 0.18% on a day, during the early Thursday’s Asian session. The Cable’s latest bounce ignores bearish MACD signals while aiming for a short-term resistance line.

 

However, the pair’s further upside beyond the said trend line resistance, at 1.3100 now, will need a strong push before attacking the monthly top around 1.3185 and March month’s peak surrounding 1.3200.

 

In a case where the bulls dominate past-1.3200, December 31, 2019 high close to 1.3285 can return to the chart. Meanwhile, a downside break of 10-day EMA level of 1.3035 won’t call the bears immediately as 21-day EMA and an ascending trend line from June 30, respectively around 1.2935 and 1.2850, can still trigger the pair’s bounce.

 

Australian Dollar

 

FXStreet: The already bid AUD/USD is extending gains with the Aussie data painting a positive picture of the labor market. The currency pair is now trading at session highs above 0.7180, having added 10 pips following the release of the upbeat jobs report. Australia’s unemployment rose to 7.5% in July, versus expectations for 7.8% and 7.4% previous. The smaller-than-expected rise is positive news. Also, the jobless rate ticked higher mainly due to an increase in the participation rate from 64% to 64.7%. 

 

What’s more, the economy added 114.7K jobs. The country was forecasted to have added 40K jobs following June’s 210.8K additions. Full-time jobs increased by 4.5K following June’s decline of 38.1K. All-in-all, the data is likely to quell fears of prolonged economic slowdown and keep the AUD better bid during the day ahead. Take note that the RBA has pledged to keep the policy accommodative until credible evidence of sustained improvement in the labor market and inflation emerges. The central bank foresees the unemployment rate rising to 10% later in 2020 due to job losses in Victoria and then gradually declining to around 7%. 

 

The gains in the Aussie dollar, however, will likely be reversed if gold comes under pressure. The yellow metal fell sharply from $2,075 to $1,863 in the last four trading days, helping the oversold greenback chart gains against major currencies. The AUD/USD pair also declined from 0.7243 to 0.7109 in the four trading days to Aug. 12, before recovering above 0.7150 during the overnight trade. Gold is currently trading around $1,938 per ounce. 

 

Global Markets

 

Reuters: Asian stocks were set for broad gains on Thursday after Wall Street’s S&P 500 index briefly touched record highs, as investors appeared to shrug off worries about stalled U.S. stimulus talks and a shaky economic recovery. Australian S&P/ASX 200 futures rose 0.69% in early trading, while New Zealand's benchmark S&P/NZX 50 index gained about 0.4%. Hong Kong’s Hang Seng index futures rose 0.42% and Japan’s Nikkei 225 futures were flat. Those gains came after the S&P 500 jumped on Wednesday, finishing just short of its February record closing high.

 

In a wide rally led by tech-related stocks, the Nasdaq and Dow also rose sharply. The Nasdaq was the first of the three major indexes to bounce back to an all-time high in June. The Dow remains below its February peak. E-mini futures for the S&P 500 were flat. U.S. government bond yields dipped from one-month highs on Wednesday after the Treasury saw good demand for a record $38 billion auction of 10-year notes, but they remained higher on the day ahead of a 30-year bond auction on Thursday. 

 

Oil prices climbed after government data showed U.S. oil inventories fell across the board, bolstering hopes for increased fuel demand in the world’s biggest economy. U.S. crude recently fell 0.19% to $42.59 per barrel and Brent was flat on the day. Save-haven precious metals recouped some of their recent losses in a choppy session. Gold swung from being down 2.5% to add 0.3% to $1,917.16 an ounce, a day after its biggest daily fall in seven years. Silver fell as much as 5.5% and rose as much as 6% after a 15% plunge, the largest in over a decade, on Tuesday. Spot gold dropped 0.3% to $1,912.97 an ounce.

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