Yen gains on trade tensions, investors await Fed
The yen strengthened versus its peers on Tuesday, as investors took refuge in safe-haven assets after the U.S. Justice Department charged China’s Huawei Technologies Co Ltd with fraud, ratcheting up U.S.-Sino trade tensions.
The United States on Monday charged Huawei, its chief financial officer and two affiliates with bank and wire fraud to violate sanctions against Iran in a case that has escalated tensions with Beijing.
Investors fear the charges could complicate high-level trade talks set to begin on Wednesday when China’s Vice Premier Liu He will meet with U.S. Trade Representative Robert Lighthizer and others.
“There is a much lesser chance now that we get anything positive out of these trade negotiations,” said Nick Twidale, chief operating officer at Rakuten Securities.
“This is likely to be bad for risky assets such as stocks and we expect the dollar/yen and Australian dollar to be under pressure,” Twidale said.
China expressed serious concern about U.S. charges on Huawei, with its foreign ministry saying on Tuesday that Beijing would protect the lawful interests of Chinese companies.
The yen, a currency sought out during times of market uncertainty or economic stress, advanced 0.15 percent versus the greenback to 109.19.
Against the Aussie dollar, the yen was up 0.2 percent at 78.18. The euro also lost 0.1 percent of its value versus the Japanese currency to 124.80 as investors took shelter in the safe-haven currency.
The Aussie dollar was down 0.1 percent at $0.7155, but well off its intra-day low after the Reserve Bank of Australia (RBA) board member Ian Harper said that the next move in Australian rates would be up.
The dollar index, a gauge of its value versus six major peers, was flat at 95.72 and holding close to a two-week low at 0314 GMT.
Market participants are focusing on the Federal Open Market Committee policy meeting between Jan. 29-30, where Chairman Jerome Powell is widely expected to acknowledge growing risks to the U.S. economy as global momentum weakens.
Investors expect the Fed to adopt a more cautious stance on policy than they did in 2018, pressured by signs of a peak in U.S. corporate earnings and the loss of economic momentum both at home and globally.
The interest rate futures market is pricing in no Fed hikes this year. Last year, the dollar enjoyed a solid rally as the U.S. central bank raised rates four times because of a robust economy.
Elsewhere, the euro was a bit weaker at $1.1427, but not far off its highest level in more than a week. Traders believe recent weak economic readings in Germany and France, and the European Central Bank’s dovish stance, are already priced into the euro.
Sterling was also slightly down 0.1 percent at $1.3150, pulling back from 3-month highs. Later on Tuesday, lawmakers will debate and vote on British Prime Minister Theresa May’s next steps, after the overwhelming rejection of her Brexit plan earlier this month, and have been proposing amendments seeking to shape the future direction of Brexit.
Analysts expect sterling to remain volatile. Britain is set to leave the European Union on March 29, but the country’s members of parliament remain far from agreeing a divorce deal.
Will the Euro Fall on France Consumer Confidence? Riots in Sight
- Euro may dip on French Consumer Confidence Report
- Yellow Vest protests may be disrupting economic activity
- Deeper EU-wide economic slowdown on the horizon?
EUR/USD may dip after France’s CPI data is released on January 29 at 07:45 GMT. Forecasts currently stand at 88 with the previous report showing 87. Broadly speaking, economic data coming out of France has been lackluster and frequently falling short of expectations. The Yellow Vest (gilet jaunes) protests have played a crucial role in France’s economic performance, particularly consumer confidence.
YELLOW VESTS PROTESTS IMPACT
The protests emerged in the last breaths of 2018. The protesters were motivated primarily by rising fuel prices, the high cost of living and grievances against certain tax codes. The protests turned into riots and eventually devolved into clashes with police and the destruction of property.
The participants involved gave a list of demands, some of which required the repealing of the fuel tax, raising the minimum wage and the resignation of President Emmanuel Macron. As a result of the domestic tribulations, his ratings have plummeted. Meanwhile, nationalist politician Marie La Pen’s popularity has grown, putting France in danger of having a Eurosceptic representation in the European Parliament in 2019.
The disturbance from the protests have only worsened, with a counter-movement known as the “Red Scarves” (foulards rouges) having marched against the initial protestors this past Sunday. This kind of political fissuring and discontent is part of a broader European trend in political fragmentation that may be made more apparent this year in the European Parliamentary (EP) elections in May.
The protests have resulted in trade losses because of blocked routes necessary for transportation along with slower consumption. Other notable indicators that have taken a hit have been the Composite and Services PMI data, coming in at 47.9 and 47.5, undershooting the forecasts of 51 and 50.5, respectively.
The Yellow Vests are now beginning to organize themselves into a political unit and are aiming to participate in the EP elections. They are currently forecasted to win 13 percent of the vote. Macron may also anger Eurosceptics around the continent because his revised budget deficit – as a way to accommodate the protestors demand – may breach the 3 percent threshold. This would put Brussels in a tighter spot with Italy.
As the third largest Eurozone economy – following the UK and Germany – what happens in France politically and economically can bear tremendous implications for the Euro. Growth in Germany is already slowing, Italy is teetering on a recession, and the UK is in the midst of a tangled Brexit arrangement.
Stock Market News
Day Ahead: Top 3 Things to Watch
Apple, Apple, Apple
The big event on Tuesday comes after the market when Apple (NASDAQ:AAPL) reports earnings for its fiscal first quarter.The Dow component and one of the biggest influencers on the Nasdaq 100 is expected to report earnings of $4.17 a share, up from $3.89 a year ago. But revenue and what it means for the future will be more important.
Apple warned after the Jan. 2 market close revenue would come in at about $84 billion, down from its own projection of $89 billion to $93 billion but 8.8% from a year ago. Just about all of the short-fall will come from China and, more specifically, disappointing sales of iPhones.
The announcement stunned investors and sent the Dow Jones industrials down 660 points the next day, although Apple’s shares are now about flat on the year.
China has emerged as a huge challenge because of the Sino-U.S. trade wars that have slowed growth on the mainland and the competition with lower-priced smart phones from Huawei, Samsung (KS:005930) and others.
The report and CEO Tim Cook’s presentation will also generate a lot of questions about iPhones sales outside China as well. Some reports have said U.S. sales are “static.”
Harley-Davidson (NYSE:HOG) reports before the open. The venerable motorcycle may report 28 cents a share in earnings, down from 45 cents a year. Revenue is seen falling 14.6% to $1.06 billion. Harley has been struggling in recent years in attracting younger buyers for its high-end pricey bikes. The stock has recovered from a nasty slid between October and Dec. 24.
Pfizer (NYSE:PFE), before the open. The estimate for the pharma giant and Dow component is 64 cents a share, up slightly from a year ago. Sales of $13.96 billion would also be up slightly. Shares are off some 8% this month.
Defense contractor Lockheed Martin (NYSE:LMT) may report $4.40 a share for the fourth-quarter, up from $4.07 a year ago, a beneficiary of the Trump Administration’s interesting in boosting defense spending. Shares are up around 15% this year. Shares are up more than 13% after a fourth-quarter swoon.
The estimate for telecom giant Verizon Communications (NYSE:VZ) is $1.09 a share for the fourth quarter, up from 88 cents a year ago, with revenue expected to rise 3.5% to $34.5 billion. Verizon has been doing some cutting of late, especially after writing down its investment in former Yahoo (NASDAQ:AABA) assets by some $4.6 billion. Verizon shares are down about 2% this month.
In economic news, look for the Conference Board’s January report on Consumer Confidence, due at 10 AM ET (15:00 GMT). It may shed some light on how consumers look at the partial shutdown of the federal government and recent market turmoil.
Apple scramble to fix eavesdropping FaceTime bug
Apple Inc. scrambled to fix a bug in its FaceTime video-chat system that lets callers eavesdrop on users of iPhones, iPads, and Macs, an embarrassing setback for a company that has touted its commitment to privacy.
The glitch, which was flagged on social media Monday, allows one FaceTime user calling another to listen in while the recipient’s Apple AAPL, -0.93% device is still ringing—even if the person never accepts the call. It requires several steps, but could be used by someone familiar with the technique to eavesdrop on rooms with unattended devices, to briefly listen in on a FaceTime user before the person accepts or rejects the call, or even to receive an unauthorized video feed from the phone.
Late Monday, Apple disabled the Group FaceTime feature that was linked to the security bug. A spokeswoman said the company was aware of the issue, and expected to release a software fix this week.
The major bug arises at a time when Apple is increasingly highlighting its emphasis on user privacy to distinguish itself from other big tech companies that have had problems protecting users. Before word of the bug surfaced, Apple Chief Executive Tim Cook called attention on Twitter to Monday being international Data Privacy Day. “On this #DataPrivacyDay let us all insist on action and reform for vital privacy protections,” his tweet said. “The dangers are real and the consequences are too important.”
Chainalysis: Two Probably Still Active Groups Account for $1 Billion in Crypto Hacks
A report outlined by blockchain analytics company Chainalysis has revealed that two hacker groups have reportedly stolen $1 billion in cryptocurrency, the Wall Street Journal (WSJ) reports on Jan. 28.
According to the new report shared with the Wall Street Journal, the two entities — which Chainalysis calls Alpha and Beta — have received the majority of the money lost in cryptocurrency scams. Furthermore, the WSJ cites Philip Gradwell, the chief economist at Chainalysis, as saying that the two organizations are probably still active.
However, the aforementioned article also quotes Chainalysis admitting that there is a chance its analysis is incorrect, and that the company has not been able to determine the groups’ identity.
The report purportedly states that Alpha is “a giant, tightly controlled organization at least partly driven by non-monetary goals,” while Beta is a smaller and less organized “heavily sanctioned organization heavily focused on the money.” The stolen funds were reportedly transferred an average of about 5,000 times before being converted into cash through online exchanges.
The two groups operate differently: Alpha reportedly begins transferring the cryptocurrency from address to address immediately, while Beta tends to wait for up to 18 months, letting the publicity around the attack fade away. The report notes that Alpha converts about 75 percent of the funds within one month on average, while Beta cashes out 50 percent in just days after their self-imposed waiting period.
Those funds sometimes go through regulated exchanges since, as Gradwell explained, after so many transfers, even those exchanges with Anti-Money Laundering structures have trouble noticing that they have received hacked proceedings.
As Cointelegraph recently reported, a link to a phishing LocalBitcoins clone website had been placed on the official LocalBitcoins forum, but the attack has since been stopped.
Also, news recently broke that as much as $16 million worth of Ethereum (ETH) and ERC20 tokens were stolen in the mid-January hack of New Zealand exchange Cryptopia.
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