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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.

 

29 / 05 / 20

LONDON OFFICE

 

British Pound

Reuters: The pound rose around half a percent against a weaker dollar on Thursday, but was little changed against the euro, as Brexit-related risks and speculation about negative interest rates continue to limit the pound’s gains. The safe-haven dollar fell to a near two-month low as global risk appetite was boosted by investors’ optimism about economies re-opening. A 750-billion-euro stimulus plan in Europe lifted regional stock indices and the euro. The pound gained as much as 0.6% against the dollar, reaching $1.2335 at 1455 GMT. It was last at $1.2314, up around 0.4%. Versus the euro, the pound was broadly flat, at 89.75 pence. Before coronavirus, the last time cable was this low was in early October, when markets feared a no-deal Brexit was imminent. The market has turned increasingly short on sterling for the last 11 weeks straight, according to weekly futures data. “Sterling’s only support is the size of the short positions, and thin month-end markets magnify that support, but that doesn’t change the fundamentals,” Societe Generale strategist Kit Juckes wrote in a note to clients. 


The pound is being held down by several factors: a lack of progress in EU trade talks, speculation about negative interest rates in Britain, a deep recession and a growing pile of debt. Sterling fell 1% on Wednesday after Britain told the European Union on Wednesday it needed to break a fundamental impasse to clinch a Brexit trade deal by the end of the year. Britain has the worst COVID-19 death toll in Europe. A COVID-19 test and trace service began in England on Thursday to allow the loosening of lockdown measures for most of the population. But nearly half of businesses in Britain that have temporarily suspended their operations because of the coronavirus lockdown are unsure when they will re-open. Britain’s economy is unlikely to recover fully from the “searing experience” of the coronavirus in the next two to three years, the Bank of England’s Michael Saunders warned on Thursday, in the gloomiest medium-term assessment to date from a UK policymaker. Saunders also said he would not necessarily rule out negative rates, and that too much stimulus was better than too little. “The question whether the BoE key rate is slightly above or below zero does not really matter,” Ulrich Leuchtmann, head of FX and commodity research at Commerzbank wrote in a note to clients. “Monetary policy in the UK - just like almost everywhere else in the world - has pretty much reached the end of the line.

 

US Dollar

Reuters: The dollar was hemmed into a narrow trading range on Friday as traders’ focus shifted to U.S. President Donald Trump’s response to China’s passage of a national security law for Hong Kong. The yuan fell in onshore trade and remained near a record low in offshore trade as markets turned nervous before Trump’s announcement later on Friday of policy moves that could ignite a diplomatic row between Washington and Beijing. The greenback was on course for a weekly loss against major currencies as progress in lifting coronavirus lockdowns and stimulus plans in Europe weakened demand for safe havens, but the mood could quickly worsen if Sino-U.S. tensions increase. “At the moment, hopes for economic recovery are strong, but I expect this to gradually fade to increased concern about the U.S.-China relationship,” said Minori Uchida, head of global market research at MUFG Bank in Tokyo. “When that happens, there will be more risk-off trades, which supports buying of both the dollar and the yen.”


The dollar stood at $1.1083 per euro in Asia on Friday, close to its lowest since March 30. The common currency was headed for its second weekly gain against the greenback as the EU’s announcement of a 750-billion-euro coronavirus recovery fund fuelled optimism about the euro-zone economy. The dollar last bought 0.9632 Swiss francs, on course for a 0.8% weekly decline. The greenback was little changed at 107.43 yen. The Australian dollar bought $0.6630, close to its highest in more than two months, while the New Zealand dollar traded at $0.6204, near its strongest since March 11. The Aussie and the kiwi were on course for weekly gains as investors cheered the gradual re-opening of business activity in the two antipodean economies. Japan’s currency crept higher against the euro, the Aussie and the kiwi, supported by safe-haven flows in relatively subdued trade. China’s parliament on Thursday approved national security legislation for Hong Kong that Western countries fear could erode the city’s freedoms. Trump, who has vowed a tough U.S. response, told reporters he would hold a news conference on China on Friday. The risk is Hong Kong could lose some of the special privileges in enjoys under U.S. law, which would threaten its status as a global financial hub.

SOUTH AFRICA OFFICE

 

South African Rand

Reuters: South African stocks firmed on Thursday with risk-on sentiment remaining intact on optimism that global growth is recovering as economies reopen after coronavirus lockdowns. The Johannesburg All-Share index rose 1.77% to 51,389 points, while the Top-40 index climbed 1.80% to 47,440 points, led by Northam Platinum and Impala Platinum with prices of the metal nearly 1% by 1525 GMT. Northam climbed almost 13% to a 2-1/2-month high, while miner Impala was up almost 11%. “Global...stocks continued to trend higher as investors became more optimistic about the pace of the economic recovery from the Covid-19 pandemic and gave little attention to the ongoing U.S.-China confrontation over Hong Kong,” Hussein Sayed, Chief Market Strategist at FXTM, said in a note.


South African President Cyril Ramaphosa on Sunday announced a further easing of the country’s lockdown from June 1, allowing the vast majority of the economy to return to full capacity. The government published guidelines on Thursday for how sectors will operate under much relaxed restrictions. The rand gave up earlier gains having touched its strongest level since March 27. It traded at 17.4390 per dollar at 1542 GMT, down 0.43 from its previous close of 17.3760. In fixed income, the yield on the 2030 government bond was down 5 basis points at 8.935%.

 

Global Markets

Reuters: Stock markets dipped and safe-havens such as bonds and Japan’s yen firmed on Friday, as investors awaited Washington’s response to China tightening control over the city of Hong Kong. China’s parliament on Thursday pressed ahead with national security legislation for the city, raising fears over the future of its freedoms and function as a finance hub. U.S. President Donald Trump, who has vowed a tough response, said he will hold a news conference on China later on Friday. Trepidation about a further deterioration in Sino-U.S. relations sent stocks lower and put investors on edge. European futures were in the red, with FTSE futures down 0.7% and EuroSTOXX 50 futures 1% lower. Futures for the S&P 500 slipped 0.2%. MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.1%. The Nikkei retreated slightly from a three-month high and, though moves were small, the safe-haven yen rose to a two-week high and bonds rose.


“It is seen as a major threat to the rally we’ve had and the recovery,” said Shane Oliver, chief economist at Australian wealth manager AMP Capital. The possible U.S. response could range from a tearing up of the Phase 1 trade deal and fresh tariffs on China, to milder travel or financial sanctions on Chinese officials, he said. “If it’s at the relatively mild end, then I don’t think it would derail the recovery bull market, but if it’s at the more extreme end with tariffs and harsh treatment of Hong Kong, then I think it gets more problematic,” Oliver said. Trump offered a muted response to Hong Kong’s mass democracy protests last year while prioritising a trade deal with Chinese President Xi Jinping. But ties with Beijing have since soured considerably through the COVID-19 pandemic. Hong Kong’s government warned on Friday that withdrawing its special U.S. status, which has underpinned it as a finance hub, could be a “double-edged sword” and urged the United States to stop interfering in internal affairs. In bond markets, yields on benchmark 10-year U.S. Treasuries fell 3 basis points to 0.6705%, more than 100 basis points below where they began 2020. Gold was firm at $1,720.87 an ounce. Demand jitters kept oil under pressure and Brent crude slipped 33 cents or 0.9% to $34.96 a barrel, while U.S. crude was down 1.6% at $33.17 a barrel. 

 

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