Brexit Delay

Market Review 09-04

Market Review 09-04

Forex News

Pound Edges Up as May Seeks Another Brexit Delay; U.S. Dollar Flat

From: Investing.com

The British pound inched up on Tuesday in Asia as U.K. Prime Minister Theresa May prepared to meet with German Chancellor Angela Merkel and French President Emmanuel Macron later in the day before setting out the case for another Brexit delay at a EU summit on Wednesday.

The GBP/USD pair was up 0.1% to 1.3078 by 11:30 PM ET (03:30 GMT).

The European Union has to decide at the summit whether it’s willing to push back the deadline for the U.K.’s departure beyond the default date of Friday.

Markets widely expect the EU to offer some sort of extension as it prefers to avoid a “no-deal Brexit” scenario that would badly disrupt the Irish economy.

Meanwhile, the U.S. dollar index that tracks the greenback against a basket of other currencies was little changed at 96.613.

A broadly positive U.S. employment report on Friday added to the belief that the Federal Reserve won’t raise interest rates this year and may even cut them.

Factory goods orders data that came out overnight were largely in line with expectations and did little to ease worries about a slowdown in the economy.

The Chinese yuan was unchanged at 6.7138 as traders wait for further trade news between the U.S. and China.

Clete Willems, a top White House trade official, told Reuters in an interview that Washington is “not satisfied yet” about certain details in trade negotiations with China.

“We’re making progress on a range of things, and there’s some stuff where we’re not satisfied yet,” Willems said. “It should be a good sign for people that we’re not rushing into this we want to get it right and we need to nail down specifics.”

The two sides are set to resume trade discussions remotely this week.

The USD/JPY pair was down 0.1% to 111.36.

The AUD/USD and the NZD/USD pair both rose 0.2% to 0.7135 and 0.6746 respectively.

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Emerging-Market Currencies Are Flashing a Warning

From: Bloomberg.com

The year has been great so far for risk assets from stocks to credit, and emerging-market assets have joined in the party. Except, recently, for their currencies.

Among the observations in a widening debate on the missing gains: some fund managers highlight their greater sensitivity to the risks of a global slowdown. The fact that these exchange rates have largely gone sideways since the end of January suggests continuing worries even as global equities build on their first-quarter surge.

Conversely, any pick-up in developing-nation exchange rates could be a good sign that the global appetite for risk is truly back in bullish mode.

“I see two challenges for EM currencies,” said Pierre-Yves Bareau, head of emerging-market debt at JPMorgan Asset Management in London. “First, the U.S. dollar is still rather strong. Secondly, the market needs to see more growth bottoming out to buy the 2018 growth laggards — like emerging markets.”

Following are a variety of perspectives on the missing rally in developing-nation currencies:

Growth Problem

While bonds and stocks have been able to take heart from central banks’ shift away from policy normalization, for the currency market, it’s going to take actual evidence of an acceleration in growth before a reaction occurs. That’s the thinking of Bryan Carter, head of emerging-market fixed income at BNP Paribas Asset Management in London.

The very reason for the Fed’s about-face after all was the sluggish economic data and growing risk of a “growth shock,” Carter said. “We don’t see FX outperforming until the data in Europe and emerging markets convincingly demonstrate an upturn, and investors reset their forward growth expectations higher.”

Dirk Willer, head of emerging-market fixed income strategy at Citigroup Global Markets in New York, puts particular blame on the euro region, saying that a weak euro has held back a rally in a number of other currencies against the dollar. That in turn has stemmed in part from the slowdown in China, on which the region has increasingly relied. With better China purchasing manager indexes, “we may be able to look forward to a turn in euro zone data as well. The pessimism surrounding the euro may start to fade, removing a headwind for EM FX,” he said.

Enough Already

After a decade of easy money from the rich world’s central banks, developed-nation fund managers might have largely had their fill of emerging market currencies. It’s a phenomenon that Institute of International Finance analysts including chief economist Robin Brooks call “EM positioning overhang.” That’s why the Fed’s dovish pivot this year — which has helped stoke the rally in everything from stocks to corporate bonds — isn’t having such a big impact on some exchange rates, they argue.

IIF international portfolio tracking data show “the volume of flows to have been on a steadily declining trend for many years, with each successive dovish shift from the Fed less potent than the one before,” the group wrote last month.

Weak Inflows

Kiran Kowshik at UniCredit Bank AG said he and his colleagues “aren’t really convinced” by the “overhang” theory. Instead, he highlighted in an April 2 note that foreign-direct investment inflows “have stagnated at weaker levels” for emerging markets. FDI and current-account flows don’t tend to shift quickly based on shifting central bank policies or global risk appetite, he noted.

The bigger problem is that emerging-market growth has suffered a structural slowdown in recent years, offering little incentive for developed-nation investors to pour in. Another flow dynamic to note: the moves that some current-account deficit countries took to reduce their vulnerabilities since the 2013 taper tantrum are largely done, he argued.

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Stock Market News

Sony shares surge after Reuters reports Third Point building stake again

From: Reuters.com

Sony Corp shares surged more than 7 percent on Tuesday after a Reuters report saying Third Point LLC was again raising its stake in the Japanese conglomerate stoked speculation that fund owner Daniel Loeb was preparing to agitate for more change.

Third Point, which has about $14.5 billion in assets under management, is raising a dedicated investment vehicle targeting $500 million to $1 billion in capital to buy Sony shares, people familiar with the matter said.

A Sony spokesman declined to comment on the report.

Sony shares rallied to a three-week high at the start of Tokyo trade, recovering from a slump last month triggered by concern that its turnaround of recent years had lost momentum.

The electronics and entertainment conglomerate had a market value of 6.1 trillion yen ($55 billion) at Tokyo’s Monday close.

The move would be Third Point’s second campaign for change at Sony in six years, coming as investors look for the company’s next profit pillar amid signs its gaming business is slowing and as its PlayStation 4 console nears the end of its lifecycle.

Third Point wants Sony to explore options for some of its business units, including its movie studio, which the fund believes has attracted takeover interest, the sources said.

Sony Chief Executive Kenichiro Yoshida sees movies, music and other intellectual property as central to stable revenue growth, having battled years of losses in consumer goods such as television sets that are more susceptible to price competition.

“I don’t think a sale of the pictures business is an option for Sony now because entertainment content is becoming crucial for the company,” Ace Securities analyst Hideki Yasuda said, pointing out synergies seen in the success of action game Marvel’s Spider-Man and the related movie series.

“The profit margin at Sony’s pictures business is thinner than rivals, but that’s a result of past management decisions, including the sale of rights to Spider-Man merchandise.”

The business is on track to recover from a series of short-term measures that cost the company long-term profit, Yasuda said.

Sony forecasts its pictures segment to report 50 billion yen ($450 million) in operating profit for the year ended March, less than a tenth of the estimated 870 billion yen profit for the entire company.

Sony has recently downsized or exited several television channels within the pictures segment to cut costs, while scoring blockbuster hits such as ‘Jumanji: Welcome to the Jungle’ and ‘Venom’.

Third Point last exited a stake in Sony in 2014 with a roughly 20 percent gain on its investment after spending a year and a half pushing for Sony to spin off its entertainment division, a call rejected by Yoshida’s predecessor, Kazuo Hirai.

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DAX 30 May Top, Hinting Market Downturn After Mixed Asia Session

From: DailyFX.com

  • Asia Pacific equities trade sideways on competing news
  • Japanese Yen keeps gains on EU-US trade war concerns
  • DAX 30 may be topping on technical cues, eyes support

Asia Pacific benchmark indexes traded sideways on Tuesday, heading into the close with varying degrees of cautious gains. Japan’s Nikkei 225 was around 0.1% higher while China’s Shanghai Composite fared slightly better. Meanwhile, Australia’s ASX 200 declined about 0.05%.

A couple of fundamental developments were competing for market attention after the S&P 500 only just closed 0.1% to the upside beforehand. On the upside, multinational conglomerate Sony received a boost after hedge fund Third Point was reported building a stake in the company.

On the flipside, rising concerns about a EU-US trade war momentarily sent equities lower in a moment of risk aversion. Looking at currencies, the anti-risk Japanese Yen gained and held onto its progress despite a slight uptick in sentiment towards Tokyo Stock Exchange close.

The pro-risk Australian and New Zealand Dollars eventually found support. However, risk appetite may be vulnerable to the upcoming IMF/World Bank Spring meeting which could highlight the prolonged uncertainty about the outlook for global growth. Technical developments in German shares also hint that sentiment may sour next, S&P 500 futures are pointing narrowly lower.

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Cryptocurrency News

Facebook Seeking $1 Bln in Venture Capital for Crypto Project

From: Cointelegraph.com

Facebook is reportedly seeking support from various venture capital (VC) firms to develop its supposed digital token, New York Times (NYT) tech reporter Nathaniel Popper tweeted on April 8.

Citing sources familiar with the matter, Popper states that Facebook is seeking a $1 billion sum to develop its cryptocurrency project. He states that seeking outside investment could keep the project more in line with the crypto community’s decentralized ethos:

“Given that one of the big allures of blockchain projects is the decentralization, getting outside investors could help Facebook present the project as more decentralized and less controlled by Facebook.”

Popper added that the reported project is a stablecoin that would be pegged to a basket of foreign currencies held in bank accounts.

Rumors of a “Facebook Coin” surfaced last December in a report from Bloomberg. The publication then reported that the token would be used for money transfers made within the WhatsApp messenger service, and would focus on the remittances market in India.

In February 2019, NYT reported that the token would be usable across the Facebook Messenger App, WhatsApp and Instagram, which would give it exposure to some 2.7 billion users each month. Anonymous sources told NYT that Facebook employed over 50 engineers to develop its cryptocurrency. Additionally, Facebook has reportedly started shopping the “Facebook Coin” around to unnamed crypto exchanges.

In regard to venture capital, founding partner of Future Perfect Ventures Jalak Jobanputra said in February that the crypto bear market had deeply affected VC firms. When asked whether there is a trend of discounted venture evaluations across the digital currency space, Jobanputra said that “given how much the volumes have decreased in the last year, I wouldn’t be surprised if we are seeing valuations come down on the secondary markets for some of these companies.”

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