Dollar inches up after Fed minutes, Aussie felled by rates and coal woes
The dollar inched up on Thursday after minutes from the Federal Reserve’s last meeting revived expectations for a possible U.S. rate hike this year while the Aussie dollar skidded on policy easing expectatations and a Chinese ban on Australian coal.
The greenback had risen slightly against the yen and trimmed losses versus the euro late on Wednesday after the Fed, in the minutes of its latest meeting in January, said the U.S. economy and its labor market remained strong, prompting some expectations of at least one more interest rate hike this year.
The dollar index against a basket of six major currencies added 0.17 percent to 96.614, crawling away from a two-week trough of 96.286 marked on Wednesday.
The Fed caught markets off guard last month after it took a dovish turn in its commentary, widely read as a sign it would suspend a three-year campaign to raise interest rates.
“The dollar drew some lift as the minutes appeared to have appeased market participants who were clinging to views that the Fed would hike rates one more time this year – but all in all, the minutes were in line with what the Fed said in January,” said Daisuke Karakama, chief market economist at Mizuho Bank.
“The market’s focal point will now shift back to trade. The U.S.-China trade negotiation deadline could be extended and that may mean Europe and Japan could be faced with trade issues.”
U.S. President Donald Trump on Wednesday said the United States would impose tariffs on European car imports if it cannot reach a trade deal with the European Union.
The dollar was a shade weaker at 110.735 yen after rising 0.25 percent overnight.
The euro was little changed at $1.1331 after being nudged off a two-week high of $1.1371 scaled earlier on Wednesday.
A big mover in Asia was the Australian dollar, which was last down 0.95 percent at $0.7095 in a volatile trading session.
The Aussie rallied early in the session to a two-week peak of $0.7207 on strong domestic January employment data. But it quickly lost altitude, with traders attributing the drop to interest rate cut forecasts made by Westpac.
The antipodean currency suffered a further hit after customs at China’s northern Dalian port banned imports of coal from major supplier Australia.
The indefinite ban on coal imports from Australia, effective since the start of February, comes as major ports elsewhere in China prolong clearing times for Australian coal to at least 40 days.
Reserve Bank of Australia (RBA) Governor Philip Lowe had sent the Aussie tumbling early in February by stepping back from the central bank’s long-standing tightening bias, saying the next move in interest rates could be either down or up.
“It is difficult for the Aussie to keep rising indefinitely when the RBA has seemingly switched to a dovish stance,” said Shin Kadota, senior strategist at Barclays.
U.K.’s May Races to Escape Brexit Impasse After Tory Defections
- Premier met with EU’s Juncker for ‘constructive’ talks
- Three lawmakers quit May’s party as premier faces revolt
That follows a meeting Wednesday between May and European Commission President Jean-Claude Juncker that they described in a joint statement as “constructive.” Meanwhile Spanish Foreign Minister Josep Borrell told Bloomberg an agreement is already being hammered out. In a sign of rising optimism in May’s team, two senior ministers privately predicted a deal would be reached within days with a potential vote in Parliament next week.
With fewer that 40 days to go until Brexit day, both sides are wrestling with how to get a deal over the line. They’re trying to avoid the U.K. crashing out of the bloc without an agreement, potentially crashing the pound and damaging both the British and EU economies. Highlighting the risks, Fitch Ratings said it may cut the U.K.’s AA credit rating, citing the economic disruption a no-deal departure could cause.
The progress in Brussels comes as problems mount domestically for the premier with lawmakers quitting her party and ministers plotting to challenge her in a crunch vote next week.
The deal May reached last year with the EU was rejected by the House of Commons last month in a record defeat for a U.K. government. Objections from the pro-Brexit wing of her Conservative Party centered on the so-called Irish backstop, which seeks to guarantee no hard border in Ireland after the split. May is now seeking legal guarantees to ensure the backstop can only be temporary.
One of the ideas the British side has been considering is an added “codicil” or appendix to the Brexit deal. This legally enforceable text could give the U.K. a unilateral exit mechanism from the backstop, but with a long 12-month notice period, according to a senior official who asked not to be named.
Working ‘At Pace’
May and Juncker on Wednesday discussed what legal assurances are possible on the temporary nature of the backstop, according to their statement. Crucially, it made no mention of reopening the withdrawal agreement, a key demand of May’s domestic opponents. The two leaders also discussed possible additions to the political declaration setting out the broad strokes of a future relationship between the U.K. and EU.
“We’ve agreed that work to find a solution will continue at pace,” May told broadcasters after their meeting. “Time is of the essence, and it’s in both our interests that when the U.K. leaves the EU it does so in an orderly way.”
In a sign of how little faith the EU has in May’s ability to drive a renegotiated deal through Parliament, the bloc wants to test proposed changes to the backstop in the House of Commons first. Only when they’re sure it’ll do the trick would they then get EU leaders to sign off on the text at a summit, two officials told Bloomberg.
But the premier wants to be able to show Parliament that she’s made significant progress on getting the Irish backstop fixed by next week, according to a person familiar with her plans.
She’ll attend an EU summit in Egypt on Sunday, and talks on Brexit are expected on the sidelines. It’s not a European Council meeting and not all leaders are expected to attend, so major decisions can’t be made there.
May is racing to beat a deadline of Feb. 27, when Parliament is due to have another vote on Brexit. If she has nothing to show for her efforts by then, rank-and-file lawmakers are threatening to seize control of the process, and force her to postpone the March 29 exit day.
In a sign of the challenge the prime minister faces next week, as many as 15 ministers are debating voting against her Brexit strategy and then challenging her to fire them in next week’s planned ballots, three people familiar with the matter said. The senior officials want to back a cross-party effort to stop Britain crashing out of the bloc without a deal.
Adding to her domestic woes, three lawmakers quit the party Wednesday to join eight Members of Parliament who earlier this week quit the Labour Party. One of them, Heidi Allen, told reporters she couldn’t imagine rejoining the party “not least because if we do our jobs right, there won’t be a Tory party to go back to.”
Announcing their resignations, Anna Soubry, Sarah Wollaston, and Allen criticized the premier for trying to placate the hard-line Brexiteers in her party and warned that more Tories may quit. Late Wednesday, the pro-EU former Attorney General Dominic Grieve, told the BBC that if the government took Britain toward a no-deal Brexit, he too would have to quit.
Stock Market News
U.S. Investigating Johnson & Johnson Over Baby Powder’s Safety
The Justice Department and Securities and Exchange Commission are investigating Johnson & Johnson over concerns about possible asbestos contamination of its popular baby powder and other talc-based products, the company said Wednesday.
In a securities filing, Johnson & Johnson said it was “cooperating with these government inquiries and will be producing documents in response” to subpoenas it had received. In a separate statement, the company said that “the inquiries are related to news reports” about the welter of lawsuits it faces from consumers who claim its talc products caused cancers.
The New York Times and Reuters reported in December on internal documents that showed decades of communications within the company about the risk of asbestos in its talc products even as Johnson & Johnson fought to keep negative information out of the public eye.
In the days after the reports were published, the company’s stock sank more than 12 percent. It had not fully regained the losses as of Wednesday.
Johnson & Johnson, which faces around 13,000 lawsuits in which its body powders are blamed for causing ovarian cancer or mesothelioma, has stood by the safety of its products. It said on Wednesday that “decades of independent tests by regulators and the world’s leading labs prove Johnson & Johnson’s baby powder is safe and asbestos-free, and does not cause cancer.”
Some of the talc suits have gone to trial. Johnson & Johnson, which is based in New Brunswick, N.J., has prevailed in some cases and succeeded in overturning verdicts in others. It has appealed several judgments, including one from July in which a jury awarded $4.7 billion to 22 ovarian cancer patients and their relatives.
Last week, Imerys Talc America, a major supplier of talc used by Johnson & Johnson and a defendant in some of the lawsuits, filed for Chapter 11 bankruptcy. The company said that although the suits challenging talc’s safety were “entirely without merit,” it did not want to “litigate these claims in perpetuity and incur millions of dollars in projected legal costs to defend these cases.”
Johnson & Johnson also noted in its regulatory filing that Senator Patty Murray, Democrat of Washington, had asked for information about the extent of the company’s knowledge about potential asbestos in its talc products.
Samsung’s foldable smartphone is a ‘game-changer’ — but it won’t be a profit-maker yet, analyst says
- Samsung’s new foldable smartphone is a “game-changer” but investors should not expect the new device to be a major contributor to the company’s profits this year, according to Mark Newman from Bernstein.
- The South Korean tech giant announced the new phone, called the Galaxy Fold, on Wednesday.
- Still, the high-end price of the device might turn it into a “status symbol,” according to Patrick Moorhead, president and principal analyst at Moor Insights & Strategy.
Samsung’s new foldable smartphone is a “game-changer,” but investors should not expect the new device to be a major contributor to the company’s profits this year, according to an analyst.
The South Korean tech giant announced the new phone, called the Galaxy Fold, on Wednesday at a launch event in San Francisco. It builds on Samsung’s engineering and display innovation since its first flexible display prototype in 2011.
“It’s a game-changer in how we may use our devices in the next decade, where you can convert your phone into a tablet,” Mark Newman, managing director for global memory, storage and electric vehicles at Bernstein, told CNBC’s “Squawk Box.”
But the smartphone’s steep price of $1,980 would likely be a barrier to widespread adoption.
“It’s a 2,000-dollar price point, so it’s too expensive, really, for most people to buy,” Newman said. Samsung was “always talking about a limited launch — very, very limited geography, a million units or less. It’s not really going to drive Samsung’s bottomline at all this year,” he added.
Instead, Wednesday’s launch was meant to test the water for an ultra-high end and pricey smartphone at a time when the broader market is shrinking. Newman explained that Samsung’s plan was to the show off the technology, get the manufacturing process going, have the software up and running, and get customers accustomed to the concept of a foldable smartphone.
“When it’s ready, they’re going to go for mainstream launch, with a more aggressive price point (in) 2020, probably,” he said, adding the Galaxy Fold would eventually present “big upside” for the world’s largest smartphone maker.
While analysts generally agree that the new foldable device demonstrates Samsung’s innovation capabilities, Daniel Yoo, head of global strategy at Kiwoom Securities, said that it might not substantially drive the company’s growth rate in the smartphone market.
Last year, Samsung’s overall smartphone shipments declined about 8 percent, according to the International Data Corporation, but the tech giant held on to pole position in terms of its market share.
“The key question mark is whether the foldable phone is going to create huge sales,” Yoo told CNBC’s “Street Signs.”
Still, the costly device might turn it into a “status symbol,” according to Patrick Moorhead, president and principal analyst at Moor Insights & Strategy.
“While I don’t think the experience will be ‘perfect’, it doesn’t have to be, but I do believe the experience will be better than the first ‘phablets’ and any other announced foldable,” he said. “At $1,980, it (is) super premium, will be a niche product, but I believe it will sell out and become a status symbol.”
Both Samsung and iPhone-maker Apple have seen their share of the smartphone market dented by Chinese competition in recent years.
The likes of Huawei, Vivo, Oppo and Xiaomi have risen to mainstream prominence by selling smartphones with high-end features at a relatively cheaper price. Last year, both Huawei and Xiaomi grew around 32 and 33 percent respectively, according to IDC.
In China, Samsung’s market share is in the single digits and in India, another major smartphone market, Xiaomi broke the Korean tech giant’s dominance.
The launch on Wednesday, during which Samsung also announced four Galaxy S10 smartphones, was the company’s “opportunity to say ‘Look, we’re not out of the game. Look at all this other stuff that we have that many of these other competitors don’t,'” said Bryan Ma, vice president for devices research at IDC. “So, it’s good that they established that.”
Bernstein’s Newman said Samsung has an advantage in the foldable smartphone category because Chinese display-makers are still “way, way behind” on developing low-cost flat display screens.
“When you’re going to the foldable phone, it becomes even more difficult,” Newman said. “It doesn’t mean (Chinese firms) cannot come up with foldable phone … their cost structure is going to be probably an order of magnitude higher than Samsung for the display right now.”
Ma said Samsung is not out of the woods yet, despite launching the Galaxy Fold.
“Competitive pressure is still going to be there. These Chinese vendors, they’re not only aggressive in terms of product design, they’re aggressive in terms of price points,” he said, adding there is still some way to go for companies to sort out hardware and software issues for foldable smartphones.
Crypto Up; Bank of China Joins Blockchain
Major cryptocurrencies were trading higher in Asia on Thursday after a mixed performance the day before amid the corporate world’s increasing adoption of the blockchain, the technology that underpins Bitcoin.
On Thursday morning, Bitcoin edged up 0.98% to $3,954.6 by 9:46 PM ET (02:46 GMT).
Ethereum added 2.42% to $146.71 and XRP rose 0.79% to $0.32767. Litecoin was the best performer, gaining 6.14% to $50.933.
The crypto market capitalisation rose further to $135 billion, compared to $120 billion last Friday.
In Asia, the Bank of China was said to be joining a new blockchain platform for homebuyers, Hong Kong news outlet The Standard reported.
The Standard said the Bank of China (Hong Kong) is the first bank user of blockchain platform PropTech, which was launched by New World Development and the Hong Kong Applied Science and Technology Research Institute (ASTRI).
Through the platform, the banks will receive the homebuyer’s authorised, encrypted and digitally signed provisional agreement instead of paper documents. Users could save eight hours from less paperwork, ASTRI CEO Hugh Chow told The Standard.
The Hong Kong Monetary Authority, the city’s de-facto bank, estimated that distributed ledger technology could reduce banks’ operating costs by 15 to 60 per cent. In 2017, the authority set up a group joined by several banks such as HSBC and Standard Chartered (LON:STAN) Bank to develop the technology.
The use of blockchain may also spread to Facebook (NASDAQ:FB). Its CEO and founder Mark Zuckerberg said the company is mulling a potential blockchain use case where users could have control over their data.
“Basically, you take your information, you store it on some decentralized system and you have the choice to log into places without going through an intermediary,” he told Harvard Law professor Jonathan Zittrain in an interview.
Elsewhere, The Bank of Lithuania reiterated its stance on digital assets and initial coin offerings. It advised financial market participants to separate their financial services activities from those associated with digital tokens. The Bank has yet to allow these participants to get paid with virtual assets.
Risk Disclaimer: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 63.18% of retail investor accounts lose money when trading CFDs with this provider. The information contained in this market review should not be construed in any way, as containing investment advice and/or a suggestion and/or solicitation for any trading activity and financial transaction. There is no guarantee and/or prediction of future performance. EuropeFX, its affiliates, agents, directors or employees do not guarantee the accuracy and validity of any information or data made available and assume no liability as to any loss arising from any investment based on the same. Trading Forex/CFD’s carries a high level of risk and can result in the loss of your whole investment. Forex/CFD’s are leveraged products and therefore Forex/CFD’s trading may not be appropriate for all investors. It is recommended that you do not invest more money than you can afford to lose to avoid significant financial problems in the case of losses. Please make sure you define the maximum risk acceptable for yourself.