Dollar slips as trade progress boosts risk assets; kiwi soars
The dollar edged lower versus its peers on Wednesday, as rising hopes of a breakthrough in U.S.-China trade talks led investors to put money into the euro and Asian currencies.
The euro gained 0.1 percent to $1.1335, while the Aussie dollar, often considered a barometer for global risk appetite, rose 0.3 percent to $0.7112.
“We seem to have moved away from dollar dominance over the last two sessions…this weakness is directly related to the improving risk sentiment around trade,” said Michael McCarthy, chief markets strategist at CMC Markets.
“The euro has bounced off an important support level and can extend its gains.”
The kiwi dollar was the biggest gainer in the Asian session, rallying a whopping 1.6 percent on the dollar to $0.6837 after the Reserve Bank of New Zealand sounded less dovish on policy than markets had wagered on, forcing a round of heavy short covering.
Risk appetite in broader markets was revived after U.S. President Donald Trump said on Tuesday that he could let the March 1 deadline for a trade agreement with China “slide for a little while,” but that he would prefer not to and expects to meet with Chinese President Xi Jinping to close the deal at some point.
U.S. tariffs on $200 billion worth of imports from China are scheduled to rise to 25 percent from 10 percent if the two sides cannot reach a deal by the deadline, increasing pain and costs in sectors from consumer electronics to agriculture.
The main focus for the markets are the high-level talks this week in China, where the world’s two largest economies attempt to hammer out a trade deal.
Financial markets have been rattled by the trade tensions over the past year, with business sentiment taking a hit globally as the fallout of the U.S.-China dispute disrupted factory activity and hurt global growth.
The dollar index, a gauge of its value versus six major peers, was marginally lower at 96.65, having lost 0.35 percent on Tuesday.
The dollar was steady versus the yen at 110.50.
Elsewhere, sterling gained 0.1 percent to $1.2900. Traders expect the British pound to remain volatile over the coming weeks as a Brexit deadline looms.
The United Kingdom is on course to leave the European Union on March 29 without a deal unless Prime Minister Theresa May can persuade the bloc to amend the divorce deal she agreed last year.
The greenback was down 0.2 percent versus the Canadian dollar at C$1.3206, after weakening 0.5 percent in the previous session. The loonie has been supported by a rise in oil prices overnight due to improving risk appetite.
RBNZ Foils Rate-Cut Bets Even as It Pushes Out Forecast for Hike
New Zealand’s central bank pushed out its forecast for an interest-rate increase to early 2021, disappointing investors looking for signs of a policy easing later this year and sending the currency surging.
Reserve Bank Governor Adrian Orr left the official cash rate at 1.75 percent Wednesday in Wellington and said he expects to keep it there “through 2019 and 2020” as subdued inflation continues to warrant supportive policy. However, the chances of a rate reduction haven’t increased, he said.
“We still see the outlook as balanced” for the OCR, Orr said in a media briefing. “What we are saying is it may stay at this level for longer based on our current projections, in large part because of slowing global economic activity.”
New Zealand’s dollar jumped as much as 1.6 percent, buying 68.48 U.S. cents at 5:20 p.m. in Wellington as traders pared bets on lower rates. There’s now about a 52 percent chance of a rate reduction by November, according to swaps data, down from 90 percent yesterday.
Orr did acknowledge that policy could yet be loosened, saying the next rate move could be up or down — a return to guidance used for much of last year before an explicit reference to a cut was dropped in November’s statement. Investors had ramped up bets on a quarter-point reduction by the end of 2019 amid signs the economy is losing momentum and after the jobless rate jumped more than expected.
“The RBNZ was either unwilling or unable to meet dovish expectations,” said Andrew Ticehurst, a rate strategist in Sydney at Nomura Holdings Inc. “Although a rate cut was not expected, market participants have observed recent dovish moves by many central banks.”
Globally, policy makers are growing more wary of raising rates amid slower expansion and risks such as the U.S.-China trade dispute and Brexit. The U.S. Federal Reserve has paused its rate increases, while Australia’s Reserve Bank this month abandoned its tightening bias as a slumping property market damped the inflation outlook.
The RBNZ’s projections today show a rate increase is now unlikely before the first quarter of 2021, compared with the third quarter of 2020 previously. The benchmark rate has been at 1.75 percent since November 2016.
“Trading-partner growth is expected to further moderate in 2019 and global commodity prices have already softened, reducing the tailwind that New Zealand economic activity has benefited from,” Orr said. “The risk of a sharper downturn in trading-partner growth has also heightened over recent months.”
Stock Market News
U.S. stocks higher at close of trade; Dow Jones Industrial Average up 1.49%
U.S. stocks were higher after the close on Tuesday, as gains in the Basic Materials, Industrials and Technology sectors led shares higher.
At the close in NYSE, the Dow Jones Industrial Average gained 1.49% to hit a new 1-month high, while the S&P 500 index gained 1.29%, and the NASDAQ Composite index climbed 1.46%.
The best performers of the session on the Dow Jones Industrial Average were Caterpillar Inc (NYSE:CAT), which rose 2.90% or 3.74 points to trade at 132.67 at the close. Meanwhile, 3M Company (NYSE:MMM) added 2.82% or 5.66 points to end at 206.57 and DowDuPont Inc (NYSE:DWDP) was up 2.62% or 1.36 points to 53.36 in late trade.
The worst performers of the session were Walt Disney Company (NYSE:DIS), which fell 0.22% or 0.24 points to trade at 109.20 at the close. McDonald’s Corporation (NYSE:MCD) declined 0.17% or 0.29 points to end at 173.97 and Coca-Cola Company (NYSE:KO) was up 0.10% or 0.05 points to 49.66.
The top performers on the S&P 500 were Brighthouse Financial Inc (NASDAQ:BHF) which rose 13.95% to 40.68, Coty Inc (NYSE:COTY) which was up 12.53% to settle at 10.87 and Pacific Gas & Electric Co (NYSE:PCG) which gained 7.68% to close at 15.43.
The worst performers were Molson Coors Brewing Co Class B (NYSE:TAP) which was down 9.44% to 59.19 in late trade, Everest Re Group Ltd (NYSE:RE) which lost 3.63% to settle at 212.39 and Gilead Sciences Inc (NASDAQ:GILD) which was down 3.28% to 65.40 at the close.
The top performers on the NASDAQ Composite were CAS Medical Systems Inc (NASDAQ:CASM) which rose 54.14% to 2.420, Pernix Therapeutics Holdings Inc (NASDAQ:PTX) which was up 36.62% to settle at 1.190 and Applied DNA Sciences Inc (NASDAQ:APDN) which gained 32.95% to close at 0.585.
The worst performers were PHI Inc (NASDAQ:PHIIK) which was down 22.79% to 3.32 in late trade, Xeris Pharmaceuticals Inc (NASDAQ:XERS) which lost 21.50% to settle at 11.54 and TMSR Holding Company Ltd (NASDAQ:TMSR) which was down 20.57% to 2.78 at the close.
Rising stocks outnumbered declining ones on the New York Stock Exchange by 2275 to 744 and 100 ended unchanged; on the Nasdaq Stock Exchange, 1920 rose and 708 declined, while 97 ended unchanged.
Ford told UK PM May it is preparing alternative production sites
Ford Motor Co told British Prime Minister Theresa May that it is stepping up preparations to move production out of Britain, The Times reported on Tuesday.
The automaker told the prime minister during a private call with business leaders that it is preparing alternative sites abroad, The Times said.
Ford was not immediately available for comment.
Ford, which operates two engine plants in Britain, last month said that it faces a bill of up to $1 billion if Britain leaves the Europe Union without a deal.
Car makers and other manufacturers have warned about the toll a no-deal Brexit could impose, including higher tariffs, disruption to supply chains and threats to jobs. Britain is scheduled to leave the European Union on March 29.
Another participant on the private call with May said that other companies delivered the same warning as Ford, The Times reported.
“This isn’t about contingencies any more – we are taking steps because of the uncertainty. It’s real,” the participant said during the call.
Last week Nissan Motor Co said it scrapped plans to build its new X-Trail SUV in Britain and will produce it solely in Japan, saying that uncertainty over Britain’s departure from the EU was making it hard for it to plan for the future.
Ford is the top-selling automotive brand in Britain, which is its third-largest market and the destination for roughly one in three cars made at its plant in Cologne, Germany. It employs about 13,000 people in Britain.
Crypto Survivors Find a Rare Lifeline
Desperate to survive the collapse of their market, cryptocurrency diehards are reaching into the financial tool kit to raise some old-fashioned cash.
They’ve begun selling derivatives linked to digital tokens to squeeze something out of their depreciating assets. Their need is so acute that ventures run mainly by software developers and tech experts are negotiating the terms with financial pros who earned their chops on Wall Street.
It’s the cost of surviving what’s come to be known as the crypto winter—and a stunning turnaround from the mania that drove Bitcoin up by 1,400 percent in 2017. The most valuable token is down about 80 percent from its peak. For the other side of the trade, it’s an inexpensive way to bet on a rebound.
Bitcoin’s Wild Ride
“Anyone sitting on a stockpile of tokens saw in the bear market of 2018 that their business is at the mercy of crypto prices,” said Sam Bankman-Fried, chief executive officer of Alameda Research, a quantitative trading firm for digital assets in San Francisco. “It can be crucial for those players’ survival to have some cash if digital asset prices go down.”
Miners, who produce new coins and verify transactions, as well as companies that raised money in the initial coin offering boom of 2017, are having to get creative to keep the lights on. They are among the main sellers of derivatives similar to covered call options, a trade popular among stock investors.
Options trading has also been propelled by a growing crowd of ex-Wall Street professionals who have quit traditional assets for crypto. Key players include QCP Capital and Akuna Capital, firms staffed by former employees of hedge funds and high frequency trading shops.
While Bitcoin futures, which were introduced in late 2017, trade on public markets managed by regulated companies such as CME Group Inc., most options trades, which began appearing about six months ago, are private bilateral contracts. That means official statistics are hard to come by.
Interviews with a dozen crypto traders and investors from New York to Sydney yielded a variety of estimates on sales volumes, from $125 million per month to $500 million, and differing views on whether the main users are professional counterparties trading between themselves, or the miners who create the digital assets and other large token holders.
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