Daily News Flash 220517 - 15 minutes to take you around the globe.

Global Markets

Asian stocks are set to edge higher on Monday following cautious gains on Wall Street, though the dollar is set to come under pressure as Washington's political turmoil undermines confidence in U.S. economic policy. MSCI's broadest index of Asia-Pacific shares outside Japan edged up 0.42 percent on Monday helped by some gains in Korean and Japanese stocks. U.S. stocks ended up on Friday but closed below their session highs on renewed concerns about Do ald Trump's presidency, following two new media reports of possible coordination between Russia and Trump's election campaign. "The escalation of the investigation into Russia's involvement in the recent U.S. election threatens to take resources, time, and attention away from the economic agenda, which had already begun meeting some scepticism," Marc Chandler, global head of currency strategy at Brown Brothers Harriman wrote in a note.

 

The dollar fell to its lowest levels in six months on Friday against a trade-weighted basket of its peers at 97.080 and was trading just a shade above that on Monday. The dollar was trading at 111.40 after falling nearly 2 percent last week. Signs from the government bond markets did not bode well for the greenback either. U.S. bond yields have gently drifted lower in recent days cutting the yield premium U.S. Treasuries earn against other bond markets such as German or Japanese debt. Oil clung on to Friday's gains trading around $50.66 per barrel.

 

Treasury 

U.S. Treasury yields fell on Friday as investors worried that allegations against U.S. President Donald Trump would disrupt efforts to cut taxes and increase spending. The Washington Post on Friday reported that a legal investigation into possible coordination between the Trump campaign and Russia includes a person of interest that is a current White House official. Trump on Thursday denied asking former FBI Director James Comey to drop a probe into his former national security adviser, Michael Flynn, and Russia. "The bigger concern about Trump is the derailing of the Trump agenda," said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York. "It wasn’t just the strength of economic data that has driven the markets to be more optimistic; part of it was the expectations that Trump will bolster growth," said Goldberg. "The derailing of the Trump agenda would act against that." A White House official said on Friday that Trump will propose $200 billion in infrastructure spending over 10 years in his first budget on Tuesday. Benchmark 10-year note yields were unchanged on the day at 2.23 percent, after earlier rising as high as 2.26 percent. The yields fell as low as 2.18 percent on Thursday, their lowest since April 19.

 

The Fed is expected to raise rates when it meets in June. Traders are not pricing in additional increases, though, as investors are reluctant to take short positions. "The risk of getting completely crushed by an unexpected headline, or a leaked tape or memo is too great. I think that is keeping a lot of investors on the sidelines," said Goldberg. Futures traders are pricing in a 74 percent chance of a June rate hike, but only a 42 percent likelihood of two or more rate increases by year-end, according to the CME Group's FedWatch Tool. Softening economic data in recent weeks has also reduced some expectations of a more aggressive Fed. St. Louis Fed President James Bullard said on Friday that the U.S. central bank's expected plans for rate increases may be too fast for an economy that has shown recent signs of weakness, making the case for a continued go-slow approach as inflation progress stalls. The Treasury will sell $88 billion in coupon-bearing supply next week, including $26 billion in two-year notes on Tuesday, $34 billion in five-year notes on Wednesday and $28 billion in seven-year notes on Thursday.

 

Currency 

The dollar struggled to push ahead on Monday, holding near six-month lows against a basket of currencies as investors assessed the impact of U.S. political turmoil and a resurgent euro. The dollar index, which tracks the greenback against a basket of six major rivals, inched up 0.1 percent from Friday's late U.S. levels to 97.235. But it was hovering not far from the previous session's 97.080, which was its lowest since Nov. 9.

 

Asian investors continued to monitor the situation on the Korean peninsula, after North Korea fired a ballistic missile into waters off its east coast on Sunday, its second missile test in a week. South Korea said the launch dashed hopes for Seoul's new liberal government's aim for peace between the neighbours. Pyongyang said on Monday it has successfully tested an intermediate-range ballistic missile, indicating further advances in the ability to hit U.S. targets. Against its perceived safe-haven Japanese counterpart, the dollar added 0.2 percent to 111.43 yen, though the latest developments in North Korea did not give the yen much of a lift. "If there's some escalation of the situation, we would likely see the yen rise," said Ayako Sera, senior market economist at Sumitomo Mitsui Trust. "But the main story for the markets is dollar weakness due to the U.S. political situation, and also the recent strength of the euro," she said. The euro inched down 0.1 percent to $1.196 after rising to a six-month high of $1.1212 on Friday. Net long positioning on the euro rose to its highest in more than three years in the week ended May 16, according to calculations by Reuters and Commodity Futures Trading Commission data released on Friday. Recent economic improvement in the euro zone have raised market expectations the European Central Bank will tone down its dovish language at its next Governing Council meeting next month.

 

At the same time, U.S. President Donald Trump, now on a trip to the Middle East, left behind political drama in Washington that some fear could derail his administration's promises of tax reform and fiscal stimulus. Trump's budget proposal, set to be unveiled on Tuesday, will include cuts to Medicaid and propose changes to other assistance programs for low-income citizens, the Washington Post reported on Sunday. Uproar over Trump's recent firing of FBI Director James Comey, who was overseeing an investigation into possible links between the president's team and Russia, has pressured the dollar. A current White House official is a significant person of interest in the law enforcement investigation of possible ties between Trump's campaign and Russia, the Washington Post said on Friday, citing people familiar with the matter. Investors were also focused on the likelihood the U.S. Federal Reserve would raise interest rates next month. Several central bank policymakers are due to speak this week, and the Fed on Wednesday will publish minutes of its May meeting, which preceded the most recent political turmoil. The second reading of first-quarter U.S. gross domestic product will be released on Friday and is expected to be revised up from a preliminary estimate of annual growth of 0.7 percent. That would be the weakest growth in three years but which many economists see as a blip.

 

GOLD

Gold rose on Friday and was on track for its best week in five as the dollar softened on political turbulence in the United States, boosting bullion's safe-haven appeal. Spot gold was up 0.6 percent at $1,253.87 an ounce by 2:47 p.m. EDT (1847 GMT), putting it up 2 percent for the week. U.S. gold futures settled up 0.06 percent at $1,253.60 "We have political turmoil in the U.S. which has driven the dollar lower... this week's sentiment has supported gold," Danske Bank analyst Jens Pedersen said, adding that it was unclear whether bullion would hold on to the gains into next week.

 

Gold is often seen as an alternative investment during times of geopolitical and financial uncertainty, gaining alongside bond yields and the yen while stocks usually take a hit. U.S. President Donald Trump last week fired Federal Bureau of Investigation Director James Comey. This triggered a political firestorm that culminated on Wednesday in the Justice Department's appointment of a special counsel to probe possible ties between Russia and Trump's 2016 presidential campaign. The dollar index, which measures the greenback against a basket of six major currencies, was poised for its worst week in more than a year while world stocks edged up. "Political risk is back on again after market participants became overly complacent following the outcome of the French elections," Commerzbank analyst Carsten Fritsch said. "Risk sentiment took a major hit," he said. New applications for U.S. jobless benefits unexpectedly fell last week and the number of Americans on unemployment rolls tumbled to a 28-1/2-year low, pointing to rapidly shrinking labor market slack. St. Louis Federal Reserve President James Bullard said the Fed's expected plans for rate increases may be too fast for an economy that has shown recent signs of weakness. "After he spoke, it was enough to push the dollar through some key levels that brought gold up pretty easily," said Bob Haberkorn, senior market strategist for RJO Futures in Chicago. Federal funds futures implied traders saw about a 74 percent chance the Fed would raise interest rates in June, CME Group's FedWatch program showed. Among other precious metals, palladium fell 0.5 percent to $757.97 per ounce. The metal slipped 6 percent this week and was poised for its biggest weekly fall since late January. Platinum rose 0.6 percent to $937.24 an ounce while silver climbed 1.6 percent to $16.80 an ounce. Both metals were headed for their strongest week since mid-April.

 

OIL

Oil prices rose on Monday, supported by reports that an OPEC-led supply cut would not only be extended into next year but might also be deepened in order to tightening the market and prop up prices. Brent crude futures were up 25 cents, or 0.5 percent, from their last close at $53.86 per barrel at 0035 GMT (8:35 p.m. ET). U.S. West Texas Intermediate (WTI) crude futures were back above $50 per barrel, trading at $50.62, up 29 cents or 0.6 percent. Both benchmarks have risen more than 10 percent from their May lows early in the month. Prices have been lifted by expectations that a pledge by the Organization of the Petroleum Exporting Countries (OPEC) and other producers, including Russia, to cut supplies by 1.8 million barrels per day (bpd) would be extended to March 2018, instead of covering just the first half of this year to March 2018. "Crude oil prices continued to trend higher as the market becomes increasingly confident that OPEC members will commit to a rollover in the production cut agreement," ANZ bank said in a note on Monday.

 

The option of deepening the production cut was also being discussed ahead of a meeting of OPEC and its allies in Vienna on May 25 to decide their output policy, sources said. Despite this, James Woods, investment analyst at Australia's Rivkin Securities, said "the potential for deepening cuts remains limited... (as) officials are likely to monitor the impact of an extension of the cuts before they resort to such action." Woods said, however, that a deeper cut may be required to rein in oversupply. This is because soaring output from the United States has undermined OPEC's efforts to tighten the market. Goldman Sachs said in a note late on Friday that "the U.S. oil rig count continued its surge (last week)," and that the rig count had added 404 oil rigs since May last year, a rise of 128 percent. U.S. oil production has already risen by 10 percent, or almost 900,000 bpd, since mid-2016 to 9.3 million bpd.

 

Source : Reuters

News Update

US trade ambassador puts Trump's anti-NAFTA rhetoric to rest

Robert Lighthizer, the recently confirmed US trade representative, sent a letter to Congress making it clear that the US isn't planning to end the North American Free Trade Agreement and that President Donald Trump's criticism of the agreement won't influence the upcoming renegotiation. The letter said the US wants to modernize NAFTA in response to increased globalization of trade.

Market News International (18 May.)           

 

White House not planning to break up big banks, Mnuchin says

The Trump administration has no plans to break up big banks, Treasury Secretary Steven Mnuchin told the Senate banking committee Thursday. Breaking up Wall Street's biggest banks would negatively affect liquidity and the economy, he said.

Bloomberg (18 May.),  The Wall Street Journal (tiered subscription model) (18 May.),  Financial Times (tiered subscription model) (18 May.)   

 

Brexit prompts EU to rethink capital-markets union

A draft document shows EU officials have been forced by the UK's withdrawal to reconsider the capital-markets union. Officials also aim to develop an alternative financial market to London, according to the document.

Reuters (17 May.)    

 

China to encourage more commodities trading

The China Securities Regulatory Commission is looking at opening futures contracts for a wide range of commodities and raw materials in an effort to encourage more foreign trade and investment, with individual Chinese exchanges also making similar plans. The move is seen as part of China's long-term plan to be more influential in global price setting.

Bloomberg (19 May.)  

 

Greece backs fresh austerity measures

The Greek parliament, in a vote backed by all 153 members of the governing coalition, enacted a bill committing the country to additional austerity measures demanded by its creditors. The action clears the way for the release of more bailout funds and negotiations on debt relief for Greece.

Kathimerini (Greece) (18 May.),  Greek Reporter blog (18 May.),  Politico Pro (subscription required) (19 May.)

 

ECB worried about signals it sends, minutes show

The European Central Bank's public statements "should be adjusted in a very gradual and cautious manner" to avoid touching off extreme market reactions, according to minutes of the ECB's governing council April meeting. Any small change in communication could lead to "premature and unwarranted tightening of financial conditions" due to the lengthy period of relaxed monetary policy, council members said.

Reuters (18 May.),  European Central Bank (18 May.),  Politico Pro (subscription required) (18 May.)  

 

ECB official warns about calm market conditions

European Central Bank official Benoit Coeure has warned of a disconnection between currently calm market conditions and brewing political turbulence, which he says could provoke a major market correction.

Financial Times (tiered subscription model) (18 May.)    

 

Brazilian scandal sends markets tumbling

Brazil's benchmark Bovespa equity index closed down 8.8% Thursday, its biggest one-day drop since the 2008 financial crisis. Traders were reacting to news that President Michel Temer, whose proposed economic reforms are widely supported by investors, was recorded encouraging an executive to pay a jailed politician to remain silent about government corruption.

Reuters (18 May.)        

 

Alibaba reports record revenue for 2016

Alibaba Group's revenue for the year ended March 31 shot up to a record $22.96 billion as more Chinese consumers embraced online shopping. Despite the increase in revenue, profit declined, largely because of investments in cloud computing and a big tax bill.

South China Morning Post (Hong Kong) (19 May.)

                                                                                                                                                           

Source : CFA Financial Newsbrief

Disclaimer

The information set out herein has been provided for general informational purposes only. 

Nothing herein constitutes or should be construed to constitute any (i) offer, advice, invitation or solicitation from Genesis Financial Group (Singapore) and its affiliates to buy or sell any investments, securities or other financial products, (ii) invitation or inducement to engage in investment activities or financial promotions of any kind or (iii) investment advice or recommendation.

We expressly disclaims any responsibility for the accuracy and completeness of, and the requirement to update, such information. Opinions, forecasts and estimates, as well as the information contained herein relating to any historical performance are for information only and are not indicative of the future or likely performance.