European Central Bank

Market Review 24-01

Market Review 24-01

Forex News

EUR/USD: Focus on ECB, dovish talk likely priced in

From: FXstreet.com

  • EUR/USD is showing signs of life ahead of the ECB
  • The European Central Bank (ECB) is sound dovish, acknowledge deterioration in growth
  • Markets seem to have priced in the potential dovish turn by the ECB

The EUR/USD pair is currently trading at 1.1388, having hit a three-week low of 1.1336 earlier this week. The currency pair could rise above 1.14 ahead of the European Central Bank (ECB) rate decision, the flag breakout on the 15-minute chart indicates.

The central bank is expected to keep policy unchanged today and acknowledge the recent slowdown in the biggest economies of Eurozone – Germany, France, and Italy.

The central bank could also downgrade the bank’s economic assessment, arguing that growth risks are now tilted to the downside.

That would imply a dovish turn, something which markets seem to have anticipated and priced well in advance.

Moreover, the rate markets pushed back expectations of the deposit rate hike to mid-2020 in the first week of this month. Further, EUR/USD has dropped more than 200 pips in the last three weeks.

As a result, the downside in the EUR could be limited, unless Draghi uses strong words while describing downside risks to the economy, bolstering hopes of policy easing.

Also, the common currency will likely fly high if Draghi refrains from downgrading the risk assessment. The central bank head may do that as downgrading the risk assets may raise hopes of monetary stimulus, complicating the process of policy normalization.

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Prolonged Shutdown Risks Fading Appeal of Dollar, Treasuries

From: Bloomberg.com

  • Lingering standoff could see investors start to lose patience
  • Debt-limit fight could lift U.S. yields this time: BofA’s Woo

The U.S. government shutdown risks putting a dent in both the dollar and Treasuries if it drags on. A quick resolution could do the same.

A drawn-out spending battle may collide with the looming debate over America’s borrowing limit, potentially raising the odds of a U.S. credit rating downgrade, as occurred in 2011. But some observers reckon the market reaction this time around would be different: Instead of driving a haven trade into Treasuries, concerns about the U.S.’s growing debt burden could reverse that flow, pushing sovereign yields higher and the dollar lower.

And the consequences of a near-term fix may be much the same, if it enables even more federal spending.

The government has been partially closed for more than a month. Yet U.S. stocks are up around 9 percent over that period, while the greenback has softened only slightly. The 10-year Treasury yield reversed a dip from early in the new year and is around 2.75 percent. But as the political deadlock stretches into a record fifth week with no clear sign of resolution, growth concerns are mounting and investors are starting to draw lines in the sand.

“The more this lingers on, the more that investors are losing patience with their dollar positions,” said Mark McCormick, North American head of foreign-exchange strategy at TD Securities. “There’s risk of a downgrade, there’s room for people to cut exposure to U.S. Treasuries.”

He’s describing a scenario in which the shutdown drags into March, inflaming the debate over the country’s debt ceiling. For some, that prospect is reminiscent of the market upheaval surrounding the debt-limit impasse under the administration of President Barack Obama, when S&P Global Ratings cut the U.S.’s AAA score. That action fueled a global sell-off in stocks, widened credit spreads and, ironically, spurred a flight-to-quality trade into U.S. debt.

While S&P, Moody’s Investors Service and Fitch Ratings have each flagged risks of the current shutdown, none say that a downgrade is imminent.

But the “brutal brinkmanship” of another debt-ceiling standoff could drive volatility in government bond markets similar to that of 2011, according to David Woo, head of global interest rates and economic research at Bank of America Corp. Except this time rates could rise, he said, given the “very large funding requirements of the U.S. government’’ and waning demand among foreign official buyers.

Economic Overflow

The situation doesn’t have to get that bad to worry investors, who are already concerned about how the public sector’s pain may ripple across the economy.

Senate leaders have agreed to votes Thursday on rival proposals for reopening the government for the first time since the shutdown began, though it’s not clear either measure can pass. White House Council of Economic Advisers Chairman Kevin Hassett said that if the partial government shutdown extends through March, the economy could flatline this quarter.

“The longer it lasts the bigger the impact it has on growth for the U.S. overall, in an environment where you’re already seeing slower growth,’’ said Chuck Tomes, a portfolio strategist at Manulife Asset Management. If the shutdown were to start hitting consumer or business confidence, that would be a signal to cut back on credit exposure, he said. In this event, Tomes expects that Treasuries could still benefit from flight-to-quality trade.

But Tomes says even if the shutdown is resolved this month, he doubts it would be “a significant positive that would unlock another leg higher in risk assets overall.” Moreover, in his view, a near-term solution may be detrimental for Treasuries and the dollar if it unleashes more government spending.

“To get foreign investors to continue to purchase that issuance then you’d either need higher yields or lower valuations for the dollar,” he said.

Knee-Jerk Bounce

For his part, TD’s McCormick sees potential for a “knee-jerk dollar bounce” on a shutdown resolution, but he expects the U.S. currency to weaken in 2019 as the market focus shifts to other political challenges. The debt ceiling is only one concern in a list ranging from Special Counsel Robert Mueller’s investigation of President Donald Trump, to the U.S.-China trade war, the ratification of the new North American trade deal and a weaker growth environment.

That said, the shutdown has allayed at least one problem for markets, according to Gautam Khanna, senior portfolio manager at Insight Investments in New York. Certain economic indicators are delayed, and a lack of new data may give the Federal Reserve cover to skip an interest-rate hike in March.

It “could be a good reason for them to pause without spooking the market regarding growth.”

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Stock Market News

Microsoft says Bing search engine blocked in China

From: Reuters.com

Microsoft Corp’s (MSFT.O) Bing search engine has been blocked in China, the company said on Wednesday, making it the latest foreign technology service to be shut down behind the country’s Great Firewall.

“We’ve confirmed that Bing is currently inaccessible in China and are engaged to determine next steps,” the company said in a statement.

It is the U.S. technology giant’s second setback in China since November 2017 when its Skype internet phone call and messaging service was pulled from Apple and Android app stores.

A search performed on Bing’s China website – cn.bing.com – from within mainland China directs the user to a page that says the server cannot be reached.

The Financial Times, citing a source, reported on Wednesday that China Unicom (0762.HK), a major state-owned telecommunication company, had confirmed the government order to block the search engine. on.ft.com/2HrhwMM

Cyberspace Administration of China (CAC), a government watchdog, did not respond to faxed questions about Bing’s blocked website.

Bing was the only major foreign search engine accessible from within China’s so-called Great Firewall. Microsoft censored search results on sensitive topics, in accordance with government policy.

Microsoft also has a partnership with Chinese data centre provider 21Vianet to offer its products Azure and Office 365 to clients in the country.

Alphabet’s (GOOGL.O) Google search platform has been blocked in China since 2010. Google CEO Sundar Pichai said in December it has “no plans” to relaunch a search engine in China though it is continuing to study the idea amid increased scrutiny of big tech firms.

President Xi Jinping has accelerated control of the internet in China since 2016, as the ruling Communist Party seeks to crack down on dissent in the social media landscape.

In a statement on Wednesday, CAC said it had deleted more than 7 million pieces of online information and 9,382 mobile apps. It also criticized technology company Tencent’s news app for spreading “vulgar information.”

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Apple just dismissed more than 200 employees from Project Titan, its autonomous vehicle group

From: CNBC.com

  • Apple dismissed just over 200 employees from Project Titan this week, its stealthy autonomous vehicle initiative, people familiar with the group told CNBC
  • A former Apple and Tesla executive, Doug Field, returned to Apple in August to work on Project Titan, alongside Bob Mansfield
  • The Project Titan lay offs were billed, internally, as a kind of restructuring under the relatively new leadership

Apple dismissed just over 200 employees this week from Project Titan, its stealthy autonomous vehicle group, people familiar with the matter told CNBC.

An Apple spokesperson acknowledged the lay-offs and said the company still sees opportunity in the space:

“We have an incredibly talented team working on autonomous systems and associated technologies at Apple. As the team focuses their work on several key areas for 2019, some groups are being moved to projects in other parts of the company, where they will support machine learning and other initiatives, across all of Apple,” the spokesperson said.

“We continue to believe there is a huge opportunity with autonomous systems, that Apple has unique capabilities to contribute, and that this is the most ambitious machine learning project ever,” they added.

In August 2018, Apple enlisted a Tesla engineering vice president and Apple veteran, Doug Field, to lead the Titan team alongside Bob Mansfield. This week’s dismissals from the group were seen, internally, as anticipated restructuring under the relatively new leadership.

Other employees who were impacted by the restructuring of Project Titan are staying at Apple, but moving to different parts of the company.

Of late, Apple CEO Tim Cook has touted his company’s initiatives in health as the key to its future growth. “I believe, if you zoom out into the future, and you look back, and you ask the question, “What was Apple’s greatest contribution to mankind?” it will be about health,” Cook told CNBC’s Jim Cramer.

Meanwhile, Apple executives have remained mum in recent months on the company’s car prospects, which appear to have been scaled back from the initial rumored vehicle to a focus on software. In 2016, Apple laid off employees from the same group, shifting its strategy. Fully self-driving cars remain experimental, even for major players in the field such as Waymo, Cruise and Tesla.

Venture investors and strategic investors from the traditional automotive world have poured billions into start-ups developing self-driving vehicles including: Zoox, Pony.AI, Aurora, May Mobility, Embark and others.

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Cryptocurrency News

Crypto Prices Drop As U.S. Government Shutdown Halts Bitcoin ETF Listing Plan

From: Investing.com

Bitcoin and other major digital coin prices dropped on Thursday in Asia after CBOE Global Markets pulled plans to list a Bitcoin exchange-traded fund (ETF), citing the U.S. government shutdown as the reason.

The CBOE’s BZX Equity Exchange published a notice on January 23, saying that it pulled its request to change a rule that could allow it to list a Bitcoin ETF. The ETF is supported by investment firm VanEck and financial services company SolidX.

VanEck’s CEO Jan van Eck said on CNBC that the shutdown affected the Securities and Exchange Commission (SEC), which in turn dragged the process of seeking approval for the ETF.

“We were engaged in discussions with the SEC about the Bitcoin-related issues, custody, market manipulation, prices, and that had to stop,” he said.

“Instead of trying to slip through or something, we just had the application pulled and we will re-file and re-engage in the discussions when the SEC gets going again,” he added.

Bitcoin traders were looking forward to the approval of a Bitcoin ETF, hoping it would attract more buyers to popularize the digital coin.

Affected by the news, Bitcoin lost 1.15% to $3,548.3 by 12:26 AM ET (05:26 GMT).

Other digital coins went down the same track. Ethereum edged down 2.52% to $115.77, XRP was down 1.56% to $ 0.31424, and Litecoin shed 1.97% to $31.241.

In other news, lawmakers in U.S. state New Hampshire proposed to widen the acceptance of cryptocurrencies. They filed a bill to let state-level agencies such as the state’s tax office to accept them as payment. If the bill wins approval, the state treasurer will have to come up with a plan to do so by November 1.

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