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DAILY BRIEF

 

 

The Daily Brief is a free email sent out each morning with information about overnight market movements and insights into the issues of the day. The brief is free and will help you keep an up-to-the-minute eye on the currency markets.

 

03 / 08 / 20

LONDON OFFICE

 

British Pound

FXStreet: GBP/USD consolidates recent losses around 1.3090 while heading into the London open on Monday. The pair stepped back from March high on Friday but closed July with over 5.5% gains, the highest in a decade. Though, the bulls are catching a breather ahead of the key activity numbers from the US and Britain. Be it the US dollar’s pullback from over two-year lows or the Brexit woes, not to forget about the coronavirus (COVID-19) crisis following the wave 2.0 confirmation, the GBP/USD has it all to ease from the multi-week top. The pair recently took clues from the Sunday Times’ news suggesting that the UK reviewing Covid-19 fighting options including London lockdown. Also weighing on the quote could be the comments from Britain’s top scientists, as per The Guardian, while saying that secrecy has harmed the UK government's response to COVID-19 crisis.


Further, Brexit talks have already dwindled and are scheduled for the restart on August 17 for the seventh round. Even if the latest chatter suggests receding odds of a no-deal Brexit, neither Brussels nor the UK shows readiness to ease on their demands for the key stumbling blocks, including fisheries, level playing field, etc. On the positive side, the Telegraph came out with the news suggesting that the businesses are on the recovery mode in the UK. Talking about the US catalysts, policymakers in America still jostle over the much-awaited aid package. In doing so, they’ve already crossed the expire of jobless claims benefits and show no sign of agreement off-late. Amid these catalysts, the market’s risk-tone remains directionless as the S&P 500 Futures print -0.05% loss whereas the US 10-year Treasury yields rise 0.7 basis points (bps) by the press time. Further, stocks in Asia-Pacific also print mixed results with Japan’s Nikkei printing most gains with Indonesia’s IDX standing on the other side. Looking forward, UK’s second reading for July month Manufacturing PMI, expected to confirm 53.6 initial forecasts, can offer immediate direction ahead of the US July month PMIs from the Markit and the ISM. While economics are likely to favor further recovery in the US dollar, risk catalysts say another story and keep the traders on the edge ahead of the BOE.

 

US Dollar

Reuters: The U.S. dollar gave up brief early gains on Monday as mounting concerns about a slowing U.S. economic recovery from the coronavirus pandemic hobbled the currency after a brief rebound late last week. The euro traded almost unchanged at $1.1768, coming off a low of $1.1741 touched earlier in the session, though it is still more than a cent below Friday's two-year high of $1.1908. The common currency hit a speed bump on some technical signs of being over-bought in the near-term, and with speculators’ long positions hitting a record level, said Minori Uchida, chief currency analyst at MUFG Bank. “But the dollar’s decline is likely to continue. Real U.S. interest rates are declining even as the country is running a big current account deficit, a situation we hadn’t have for a long time,” he said. U.S. bond yields have fallen to their lowest level since the pandemic-induced market turmoil in March, with the 10-year rate slipping to near 0.50%, undermining the yield attraction of the dollar.


U.S. bonds looked even less attractive when adjusted for inflation expectations, with the yield on inflation-protected U.S. 10-year Treasuries falling to a record low below minus 1%. The dollar changed hands at 105.90 yen, giving up early gains to 106.44, which traders saw as an extension of Friday's rebound from 4-1/2-month lows of 104.195 triggered in part by month-end buying. Investors have reasons to worry about the U.S. outlook as policymakers have so far struggled to clinch a deal to pump more money into the world’s largest economy even as an expanded unemployment benefit, worth about $75 billion per month and accounting for nearly 5% of personal income, expired on Friday. White House Chief of Staff Mark Meadows said on Sunday he was not optimistic on reaching agreement soon on a deal for the next round of legislation to provide relief to Americans hit hard by the coronavirus outbreak. A growing U.S. fiscal deficit to finance the stimulus prompted Fitch Ratings to revise the outlook on the United States’ triple-A rating to negative from stable. While the market has not shown immediate reaction to the downgrade, it still marked a sharp contrast with the European Union, which got a lift from Standard and Poor’s decision to upgrade its rating outlook to positive from stable.

SOUTH AFRICA OFFICE

 

South African Rand

Reuters: South Africa’s rand slumped to a new three-week low in an emerging market rout on Friday as investors’ hopes for a global recovery were dented by a sharp contraction in the U.S. economy. At 1640 GMT, the rand was 1.63% weaker at 17.0250 per dollar, its weakest since July 8, adding to Thursday’s 2% plunge. Sentiment towards the rand has been driven by offshore events in recent weeks, with stimulus programmes by developed market central banks and a relaxation of lockdown restrictions spurring the currency to pre-COVID-19 pandemic levels in June. But signs of a resurgence in global infections have since tamed global demand for assets perceived as risky. That has put renewed pressure on the rand, which was already vulnerable given South Africa’s economic recession and jump in coronavirus cases. 


“Fearful of the fundamental economic weakness across the globe, investors have fled to U.S. treasuries and gold. As you’d expect, EM (emerging market) currencies are struggling, with the rand surrendering 20c to the dollar,” said RMB’s Nema Ramkhelawan-Bhana. Data on Thursday showed the United States, the world’s largest economy, contracted at its steepest pace since the Great Depression in the second quarter. South African stocks dipped, tracking global markets. The Johannesburg Stock Exchange’s Top-40 Index fell 0.16% to 51,369 points, and the broader All-Share Index closed down 0.22% at 55,722 points. Among the fallers, the bullion sector shed 2.45%, with AngloGold Ashanti down 5.34% to 554.73 rand. Shares in MTN closed down 2.46% after scrapping its 2020 interim dividend and announcing its CEO had been appointed to head the enterprise unit of British broadband and mobile operator BT from next year. Bonds were firmer, with the yield on the benchmark government bond due in 2030 down 5 basis point to 9.245%.

 

Global Markets

Reuters: Asian share markets turned mixed on Monday as U.S. lawmakers struggled to hammer out a new stimulus plan amid a global surge of new coronavirus cases, though a squeeze on crowded short positions left the dollar clinging to a tentative bounce. Sentiment was helped by a survey showing China’s factory activity expanded at the fastest pace in nearly a decade in July, with the Caixin/Markit PMI at 52.8. That lifted Chinese blue chips 1.0% .CSI300. MSCI's broadest index of Asia-Pacific shares outside Japan dipped 0.5%, though that was from a six-month top. Japan's Nikkei added 2.1% courtesy of a pullback in the yen, while South Korea shares were flat. E-Mini futures for the S&P 500, EUROSTOXX 50 futures and FTSE futures were all little changed. Investors were nervous at the lack of a new stimulus package in the United States with White House Chief of Staff Mark Meadows not optimistic on reaching agreement soon on a deal.


On Friday, Fitch Ratings cut the outlook on the United States’ triple-A rating to negative from stable, citing eroding credit strength and a ballooning deficit. The credit rating agency also said the future direction of U.S. fiscal policy depends in part on the November election and the resulting makeup of Congress, cautioning there is a risk policy gridlock could continue. Strong results from tech giants helped the S&P 500 climb 5.5% last month, while the NASDAQ rose 6.8%. Other sectors, however, did not fair nearly as well as many states rowed back on opening their economies in the face of surging infections. “Amid improvements in business sentiment, signals are emerging that the initial boost from pent-up demand is fading and consumer confidence is slipping lower,” wrote economists at Barclays in a note. “Together with concerns about labour market and virus developments, this clouds the outlook and could be exacerbated if U.S. fiscal support is not renewed in time.” Much will depend on what key data show this week including the ISM survey of manufacturing later on Monday and the crucial payrolls report on Friday. The uncertainty saw benchmark 10-year Treasury yields hit their lowest since March at 0.52% last week and were currently just a fraction higher at 0.54%. In commodity markets, the decline in the dollar combined with super-low real bond yields has been a boon for gold, which boasted its biggest monthly gain since February 2016. The metal made a fresh peak early Monday at $1,984 an ounce and seemed on track to take out $2,000 soon. Oil prices eased on concerns about oversupply as OPEC and its allies, together known as OPEC+, are due to pull back from production cuts in August while an increase in COVID-19 cases worldwide raised fears of slower pick-up in fuel demand. Brent crude futures dipped 17 cents to $43.35 a barrel, while U.S. crude eased 22 cents to $40.05.

 

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