Brexit hopes keep sterling, euro bid; dollar bulls take a breather
The euro and sterling climbed higher on Wednesday as investor confidence rose on news Britain had struck a draft divorce deal with the European Union after more than a year of talks.
The rise in the euro and sterling led investors to take profits on the U.S. dollar, which has retraced from a 16-month high.
The dollar index .DXY, a gauge of its value versus six major peers, traded at 97.05 on Wednesday, down 0.26 percent. The index hit a 16-month high of 97.69 on Monday.
The sell-off in the dollar has been due to the improved risk sentiment around a potential Brexit deal and not because of any deterioration in the fundamentals of the U.S. economy. The euro and sterling constitute around 70 percent of the weight in the dollar index.
“Don’t be fooled by the pullback in the U.S. dollar…nearly all of the major currencies rebounded because of local factors and not a shift in appetite for U.S. dollars or change in economic fundamentals,” said Kathy Lien, managing director of currency strategy at BK Asset Management.
Lien expects the dollar to strengthen further on the back of a robust U.S. economy, rising interest rates and its safe haven status.
The British pound GBP= traded at $1.3009 on Wednesday, gaining 0.3 percent as traders reduced bearish bets after Britain and the European Union agreed a preliminary text that would allow the United Kingdom to leave the EU with a deal that avoids a chaotic “hard Brexit” departure.
The challenge for British Prime Minister Theresa May is now to sell this deal to the parliament, where hardline Brexit supporters accuse her of surrendering to the EU.
The cabinet will meet at 1400 GMT on Wednesday to consider the draft withdrawal agreement.
“The bullish sentiment has certainly returned for the pound, but we need to see the finer details of the draft deal and May needs support from her ministers,” said Michael McCarthy, chief market strategist at CMC markets.
McCarthy said while there was still plenty of scope for further sterling appreciation, it would be prudent to wait on the sidelines until a clearer picture emerged.
Riding on the positive sentiment around a potentially orderly Brexit deal, the euro EUR= gained 0.1 percent to trade at $1.1301 on Wednesday.However, the gain was limited by concerns about Italy’s budget proposals and downbeat German investor confidence data, traders said.
“Italy is still a concern for traders and we can see more uncertainty in the euro zone going ahead. The gains in the euro will be muted,” added McCarthy.
The single currency lost 0.18 percent versus the pound to trade at EURGBP= 0.8687. The euro hit a 6-1/2 month low versus sterling of 0.8653 on Tuesday.
The dollar gained 0.11 percent versus the yen JPY= on Wednesday to trade at 113.93. The yen touched a six-week low of 114.20 on Monday.
The Australian dollar AUD= changed hands at $0.7224, gaining 0.12 percent versus the greenback.
The Canadian dollar CAD= changed hands at 1.3227, trading near its 4-month low due to a sell-off in the price of crude.
Oil, one of Canada’s major exports, plunged to lows not seen since last November due to ongoing worries about weakening global demand and oversupply.
AUD/USD and NZD/USD Fundamental Daily Forecast – Optimism Over US-China Trade Relations Underpinning Aussie, Kiwi
The AUD/USD and NZD/USD should continue to be underpinned as long as investors remain optimistic over the developments over US-China trade relations. Technical factors could slow down the rally because both Forex pairs are nearing potential resistance areas. A risk-off scenario because of heightened stock market volatility, or turmoil in Europe is likely to drive investors into the safe-haven U.S. Dollar, which could put pressure on the AUD/USD and the NZD/USD.
The Australian and New Zealand Dollars are inching higher on Wednesday, putting both currencies in a position to challenge last week’s highs. After starting the week under pressure due to expectations of higher interest rates from the Fed, the Aussie and Kiwi have mounted strong recoveries on the hope that the U.S. and China would soon reach a viable solution to the lingering trade dispute.
At 0630 GMT, the AUD/USD is trading .7220, up 0.0002 or +0.02% and the NZD/USD is at .6778, up 0.0012 or +0.19%.
On Tuesday, the Aussie and Kiwi were underpinned after The Wall Street Journal broke the story that Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He had resumed trade talks.
Later in the trading session, the AUD/USD and NZD/USD strengthened further after White House economic advisor Larry Kudlow confirmed reports of renewed talks between the U.S. and China on trade.
The renewed trade talks are important because they could lead to a smooth transition into higher level talks between U.S. President Donald Trump and Chinese President Xi Jinping at the G-20 summit in Buenos Aires, Argentina on November 30 – December 1.
Australian Economic News
Early Wednesday, the Westpac Consumer Sentiment report came in better than expected, up 2.8% versus a previous read of 1.0%. The quarterly Wage Price Index rose 0.6%, matching the forecast. However, the previous quarter was revised lower to 0.5%.
China Economic News
Investors are also reacting to the release of fresh economic data from China. Earlier today, China reported that the country’s Industrial Production for October came in at 5.9 percent higher than a year ago. This was slightly better than the 5.8 percent forecast.
Fixed Asset Investment came in at 5.7 percent higher than a year ago. Investors were looking for an increase of 5.5 percent.
China’s Retail Sales report was disappointing. The year-to-year number came in at 8.6 percent higher, much lower than the 9.2 percent forecast.
China’s statistics bureau showed retail sales growth in China unexpectedly dipped to the slowest pace since May last month while real estate decelerated further.
The October figure was down 0.7 percentage points from September’s level. Furthermore, it took sales growth during 2018 down a tenth of a point to 9.2 percent, however, the dip was even worse for online sales which showed a full percentage point decline for the first ten months to 26.7 percent.
The AUD/USD and NZD/USD should continue to be underpinned as long as investors remain optimistic over the developments over US-China trade relations. Technical factors could slow down the rally because both Forex pairs are nearing potential resistance areas.
The upside target zone on for the AUD/USD that could put a cap on gains is .7252 to .7307. This zone stopped the rally last week at .7302. The NZD/USD is currently trading inside its retracement zone at .6742 to .6818. This zone also provided resistance last week.
Investors are also watching investor demand for risk. Low stock market volatility could also be supportive for the Aussie and Kiwi because it would weaken the role of the U.S. Dollar as a safe-haven currency.
A risk-off scenario because of heightened stock market volatility, or turmoil in Europe is likely to drive investors into the safe-haven U.S. Dollar, which could put pressure on the AUD/USD and the NZD/USD.
Traders will also get the opportunity to react to the latest U.S. data on consumer inflation. The CPI is expected to come in at 0.3 percent. Core CPI is expected to have risen 0.2 percent.
Stronger than expected CPI data could be bearish for the Aussie and Kiwi because it will support the Fed’s case for additional rate hikes, making the U.S. Dollar a more attractive investment.
Stock Market News
Is Apple Trying to Hide Something From Investors?
Despite its recent post-earnings sell-off, Apple has been on a terrific run in 2018 — actually, over the past two years. Still, its market valuation has been discounted compared to other big tech names, such as the other FAANG stocks: Facebook, Amazon, Netflix, and Google parent Alphabet. You can see in the chart below that its forward P/E lags the others’.
That discount is because Apple, unlike the others stocks, is thought of first and foremost as a hardware company. Combined, the iPhone, iPad, Mac laptops, and “other” products (such as headphones) added up to 84% of sales last quarter, with almost 60% coming from the iPhone.
Because the iPhone has been such a dominant product for Apple’s top line, the number of iPhone units moved has become somewhat of an obsession for analysts and investors. But on its recent fiscal fourth-quarter call, the company announced it would stop disclosing unit metrics for the iPhone, iPad, and Macs to the public.
Should investors be concerned?
U.S. stocks mixed at close of trade; Dow Jones Industrial Average down 0.40%
U.S. stocks were mixed after the close on Tuesday, as gains in the Financials, Utilities and Industrials sectors led shares higher while losses in the Oil & Gas, Healthcare and Telecoms sectors led shares lower.
At the close in NYSE, the Dow Jones Industrial Average lost 0.40%, while the S&P 500 index fell 0.15%, and the NASDAQ Composite index added 0.03%.
The best performers of the session on the Dow Jones Industrial Average were Intel Corporation (NASDAQ:INTC), which rose 1.59% or 0.74 points to trade at 47.39 at the close. Meanwhile, American Express Company (NYSE:AXP) added 1.29% or 1.37 points to end at 107.86 and Procter & Gamble Company (NYSE:PG) was up 0.83% or 0.77 points to 93.47 in late trade.
The worst performers of the session were Exxon Mobil Corp (NYSE:XOM), which fell 2.29% or 1.83 points to trade at 78.00 at the close. Boeing Co (NYSE:BA) declined 2.11% or 7.52 points to end at 349.51 and Chevron Corp (NYSE:CVX) was down 1.74% or 2.04 points to 115.35.
The top performers on the S&P 500 were Advance Auto Parts Inc (NYSE:AAP) which rose 10.57% to 184.72, General Electric Company (NYSE:GE) which was up 7.76% to settle at 8.61 and NVIDIA Corporation (NASDAQ:NVDA) which gained 5.15% to close at 199.31.
The worst performers were Coty Inc (NYSE:COTY) which was down 5.66% to 8.16 in late trade, Tyson Foods Inc (NYSE:TSN) which lost 5.58% to settle at 58.17 and Halliburton Company (NYSE:HAL) which was down 5.53% to 32.27 at the close.
The top performers on the NASDAQ Composite were Pyxis Tankers Inc (NASDAQ:PXS) which rose 53.89% to 2.9700, EyeGate Pharmaceuticals Inc (NASDAQ:EYEG) which was up 34.66% to settle at 0.420 and Hudson Technologies Inc (NASDAQ:HDSN) which gained 32.96% to close at 0.960.
The worst performers were EverQuote Inc Class A (NASDAQ:EVER) which was down 43.49% to 6.73 in late trade, PHI Inc (NASDAQ:PHIIK) which lost 25.27% to settle at 4.76 and CTI Industries Corporation (NASDAQ:CTIB) which was down 24.30% to 3.02 at the close.
Falling stocks outnumbered advancing ones on the New York Stock Exchange by 1624 to 1451 and 78 ended unchanged; on the Nasdaq Stock Exchange, 1317 fell and 1312 advanced, while 89 ended unchanged.
Shares in Advance Auto Parts Inc (NYSE:AAP) rose to 3-years highs; rising 10.57% or 17.66 to 184.72. Shares in Coty Inc (NYSE:COTY) fell to all time lows; losing 5.66% or 0.49 to 8.16. Shares in Halliburton Company (NYSE:HAL) fell to 52-week lows; falling 5.53% or 1.89 to 32.27. Shares in Procter & Gamble Company (NYSE:PG) rose to 52-week highs; rising 0.83% or 0.77 to 93.47. Shares in EverQuote Inc Class A (NASDAQ:EVER) fell to all time lows; losing 43.49% or 5.18 to 6.73. Shares in PHI Inc (NASDAQ:PHIIK) fell to all time lows; falling 25.27% or 1.61 to 4.76. Shares in CTI Industries Corporation (NASDAQ:CTIB) fell to 5-year lows; falling 24.30% or 0.97 to 3.02.
HSBC Backs Blockchain Firm Axoni
HSBC, the U.K. bank, is backing a U.S. startup in the blockchain field called Axoni, Cryptovest reported. The firm plans to put the funds to use by growing its AxCore system, which is based on distributed ledger technology (DLT), as well its smart contracting language called AxLang. (It also plans to enhance its technology for data synchronization.) With the latest investment, the company’s fresh money has risen to $36 million.
HSBC Global Banking and Markets, Americas COO Matthew J. Flanigan said in a press release, “distributed ledger technology will clearly be important in modernizing the shared infrastructure of capital markets. Axoni has demonstrated that they are the leader in this space and HSBC is delighted to work with them on increasing efficiency and lowering costs for the industry.”
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