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18 / 10 / 19



British Pound

Reuters: The pound traded near a five-month high against the dollar and the euro after Britain’s prime minister Boris Johnson and European Union leaders agreed a new deal for Britain to exit the bloc. The yuan held steady against the dollar after data showed China’s economy grew at the weakest pace in more than 27 years in the third quarter due to a costly trade war with the United States and weak factory production. Sterling’s gains on the dollar helped push the greenback to a five-month low versus the euro and a three-week low against the Swiss franc. Initial relief at securing the long-awaited Brexit deal could be brief, however, because the prime minister still needs to sell the agreement to sceptical lawmakers when parliament sits on Saturday. Once Britain does leave the EU, its economic growth is expected to slow, which is likely to be a negative for sterling in the longer term, analysts warn. “Assuming we clear the parliamentary hurdle, the pound has room to rise further because there are a lot of shorts to be unwound,” said Takuya Kanda, general manager of the research department at Research Institute in Tokyo.

“But after that, people will start to question whether this is really good for Britain’s economy, and further gains in sterling could become difficult.” The pound traded at $1.2856 in Asia on Friday, close to a five-month high of $1.2988 reached on Thursday after EU leaders unanimously backed the new Brexit deal with Britain. Against the euro, sterling traded at 86.57 pence, near a five-month high of 85.77 pence. For the week, the pound was on course for a 1.6% gain versus the dollar and a 0.8% increase against the common currency. Britain’s new Brexit deal has a “decent chance” of clearing parliament on Saturday, finance minister Sajid Javid said, but some investors are wary because debate so far on Brexit has been fractious and difficult to predict. Even if Johnson can win approval in parliament, Britain is still on course for more distant economic ties and increased trade barriers with the EU, which many economists say will slow growth in the UK. China’s economic growth slowed more than expected to 6.0% year-on-year in the third quarter, the weakest pace in at least 27-1/2 years, as demand at home and abroad faltered amid a bruising Sino-U.S. trade war. In the onshore market, the yuan traded at 7.0740 per dollar little changed on the day. In the offshore market, the yuan was quoted at 7.0730 versus the greenback. Friday’s data marked a further loss of momentum for the Chinese economy from the second quarter’s 6.2% growth, likely raising expectations that Beijing needs to roll out more measures to ward off a sharper slowdown. The world’s two-largest economies have imposed tariffs on each other’s goods in a dispute over China’s trade and industrial policies that has slammed the brakes on global economic growth. Worries about weak U.S. economic data kept the greenback lower against other currencies. The dollar traded at 0.9879 Swiss franc, close to the lowest since Sept. 25 and on course for its biggest weekly decline since Aug. 9. The dollar was quoted at 108.56 yen, headed for its second week of gains.


US Dollar

Reuters: The U.S. dollar fell sharply against the euro and sterling on Thursday as European Union leaders unanimously backed a long-awaited Brexit deal to take Britain out of Europe on Oct. 31. Britain clinched an eleventh-hour deal on its exit from the EU on Thursday, more than three years after Britons voted in a referendum to leave the bloc, but Prime Minister Boris Johnson still faces a knife-edge vote in parliament on Saturday to get it approved. While uncertainty remains on whether the pact will be ratified by British lawmakers, news of the agreement was enough to boost the euro 0.46% against the dollar and 0.12% against the British pound. “The fact that we have a deal means that we are further from a hard Brexit and all eyes will shift to this weekend’s vote,” Brad Bechtel, global head of FX at Jefferies, said in a note. The development in the Brexit saga marks a welcome respite for the euro, which has dropped more than 3% this year. Investor sentiment towards the single currency has been hurt by a broad economic slowdown in Europe driven by the protracted U.S.-China trade dispute.

On Thursday, the German government said it lowered its 2020 forecast for economic growth to 1.0% from 1.5% previously, but added that Europe’s largest economy was not facing a crisis. News of the deal sent sterling surging to a five-month high and within a whisker of $1.30 before retreating sharply as traders worried that Johnson might fail to get lawmakers to support the Brexit plan, plunging the country into another round of uncertainty. Sterling was 0.34% higher at $1.2874 in a very choppy session. The dollar has come under pressure this week, shedding about 0.7% against a basket of currencies. The greenback, which fell on Wednesday after weak U.S. retail sales data supported the case for further interest rate cuts by the Federal Reserve, extended its weakness on Thursday. Data showed U.S. homebuilding tumbled from a more than a 12-year high in September. Separately, data showed a deceleration in factory activity in the mid-Atlantic region in October. The Norwegian crown weakened to an all-time low of 10.1800 against the euro. Some analysts blamed the crown’s recent weakness on global trade jitters, while others said the speed and magnitude of the drop were hard to explain. The Australian dollar held near the day's highs, up 1.02% against the dollar after jobs data showed buoyant hiring, lowering chances of monetary easing in November.



South African Rand

EWN: The rand firmed on Thursday after the country’s Cabinet approved the promulgation of its long-delayed plan for electricity generation amid nationwide power cuts by state utility Eskom. At 1535 GMT, the rand was 1% firmer at R14.7900 per dollar. The Integrated Resource Plan (IRP 2019) will replace a previous blueprint not updated for almost a decade, and deals with electricity generation and the energy mix South Africa will rely on in the immediate future. “The news comes as a great relief after months of uncertainty, in the midst of yet another round of load shedding (power cuts) implemented by Eskom,” said Bianca Botes, treasury partner at Peregrine Treasury Solutions. South Africa was hit by power cuts for a second day on Thursday with Eskom saying a number of generating units were still out of service and some would not be back up and running for a few days. Debilitating power cuts in February and March pushed first-quarter economic growth into contraction and raised the likelihood of South Africa losing an investment-grade rating.

Moody’s is the last of the big three credit rating agencies to have an investment-grade rating on South Africa and is due to deliver its latest credit review on 1 November. Equities fell, with the broader Johannesburg All-share index down 0.17% to 55,993 points, while the blue chip Top-40 index edged 0.28% lower to 49,715 points. Diversified miners were among the losers, with Anglo American down 1.27% to R360.54, while BHP Group shed 2.010% to R305.93. “Commodity prices are under pressure at the moment, so all the diversified miners are trading weaker because of that and a stronger rand causing a pullback,” said Jean Wessels, a trader at AG Capital. Bucking the trend were gold miners, with bullion edging up as investors focused on lingering uncertainties over US-China trade ties. DRDGOLD gained 2.5% to R6.95, Harmony rose 2.070% to R45.41, and Sibanye-Stillwater was up 1.96% at R25.45. The yield on the benchmark government bond due in 2026 fell 1.3 basis points to 8.26%.


Global Markets

Reuters: Asian stocks stumbled on Friday after China posted its weakest growth in nearly three decades, countering a global lift in sentiment on the UK and European Union striking a long-awaited Brexit deal. China’s economy grew 6.0% in the third quarter, less than expected, and the weakest pace in at least 27-1/2 years, as the Sino-U.S. trade war hit demand at home and abroad. While the downbeat data raises the prospect that Chinese policymakers could prepare more measures to boost growth, analysts and market players said Beijing has relatively little room for significant easing. “How much traction is monetary policy going to get? If there is any short-term move higher here in Asia it will genuinely be only short-term players because we’re not far from printing 5 percent in China GDP, and that’s not going to be good for risk assets,” said Greg McKenna, strategist at McKenna Macro. “It doesn’t matter how excited you get about stimulus, it is not going to be good for risk assets.”

MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.17% by 0350 GMT, erasing earlier small gains. Australian shares dropped 0.61% and Chinese blue-chips were off 0.65%. The disappointing Chinese data came as Japan’s core inflation slowed to near 2-1/2-year lows in September, raising expectations that the Bank of Japan could add to its already massive monetary stimulus. Japan's Nikkei was last up 0.18%. Sterling, which had enjoyed its biggest rising streak since October 1985 and hit a five-month high on the back of the Brexit deal, gave up ground on Friday morning amid doubts that the agreement would receive parliamentary approval. The pound eased 0.31% to buy $1.2848. “Whatever was agreed last night with the EU still has to go through the British parliament...the uncertainty surrounding that still hasn’t changed one iota,” said James McGlew, executive director of corporate stockbroking at Argonaut in Perth, Australia. Equity markets had enjoyed a bounce on Thursday from the initial Brexit news, with the S&P 500 briefly topping 3,000 points for the first time in more than three weeks. Helping to alleviate immediate trade war worries, China said on Thursday that it hoped to reach a phased agreement in its trade dispute with the United States as soon as possible. Investors were also encouraged by upbeat earnings from Netflix and Morgan Stanley, but poor results from International Business Machines Corp and weak U.S. economic data weighed. Housing starts, industrial production and mid-Atlantic factory output all fell short of economist expectations. The Dow Jones Industrial Average gained 0.09% to 27,025.88, the S&P 500 finished up 0.28% at 2,997.97 and the Nasdaq Composite rose 0.4% to 8,156.85. On Friday, S&P 500 e-mini stock futures, were down 0.16% at 2,993.25. Reflecting the cautious mood, the yield on benchmark 10-year Treasury notes fell to 1.7395% compared with a U.S. close of 1.755% on Thursday. In the currency market, the safe-haven yen strengthened, with the dollar falling 0.1% to 108.54, while the euro was up 0.04% on the day at $1.1126. The dollar index, which tracks the greenback against a basket of six major rivals, was barely lower at 97.592. Oil fell, with U.S. crude dropping 0.17% to $53.84 a barrel and Brent crude easing 0.45% to $59.64%. Spot gold rose to $1,492.54 per ounce.




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