Dollar Rises on Brexit Extension Uncertainty; Lira Struggles
The dollar is holding on to most of its recent gains in early trading in Europe Friday, supported by fears of an extended period of uncertainty over Brexit that is weighing on both sterling and the euro.
The U.K. House of Commons is set to vote once more on Prime Minister Theresa May’s twice-defeated Withdrawal Agreement later Friday, but the initiative seems doomed to failure, lacking the support of the Northern Irish party that May’s Conservatives rely on, and of hard-line Conservative Brexiteers themselves.
The most likely outcome of the bill failing is that May will ask the EU for a longer extension to the Brexit deadline of April 12th, accepting that this will mean taking part in EU parliamentary elections in May. It is not clear that there is the necessary unanimous support among EU governments for an extension, so a ‘Hard Brexit’ on April 12th remains the default scenario.
The pound hit a three-week low against the dollar Thursday as the market digested the implications of a stalemate that couldn’t be broken by votes on eight alternative courses of action to the Withdrawal Agreement.
Despite rebounding a little overnight, at 0400 AM ET (0800 GMT), it was down some 0.2% from Thursday’s close at $1.3019 against the dollar. Against the euro, it hit a one-week low of 1.1597 after German retail sales data for February turned out stronger than expected, providing some rare comfort about the strength of Europe’s largest economy.
The dollar index, which measures the greenback against a basket of six major currencies, was at a two-week high of 96.822, thanks to safe haven flows at the expense of emerging market currencies such as the Turkish lira and South African rand. The dollar surged by over 4% against the lira on Thursday and is up another 1.7% Friday morning.
Russia Is Dumping U.S. Dollars to Hoard Gold
- Renaissance Capital says Russia may start to import gold
- Gold buying last year exceeded mine supply for the first time
Vladimir Putin’s quest to break Russia’s reliance on the U.S. dollar has set off a literal gold rush.
Within the span of a decade, the country quadrupled its bullion reserves and 2018 marked the most ambitious year yet. And the pace is keeping up so far this year. Data from the central bank show that holdings rose by 1 million ounces in February, the most since November.
The data shows that Russia is making rapid progress in its effort to diversify away from American assets. Analysts, who have coined the term de-dollarization, speculate about the global economic impacts if more countries adopt a similar philosophy and what it could mean for the dollar’s desirability compared with other assets, such as gold or the Chinese yuan.
French President Emmanuel Macron said in an interview with CNN in November that European corporations and entities are too dependent on the U.S. currency, calling it “an issue of sovereignty.” Last year, Poland and Hungary surprised analysts by making the first substantial gold purchases by a European Union nation in more than a decade.
For Russia, experts are starting to question whether it can afford to keep up its intense pace of buying. Some say the country will import more gold to guard against geopolitical shocks and the threat of tougher U.S. sanctions as relations between the two powers continue to deteriorate. Gold buying last year exceeded mine supply for the first time. Still, others argue that Russia’s bullion demand is set to slow.
“Should it reach the limit for domestic purchases, I think the central bank will start to import gold,” said Oleg Kouzmin, chief economist at Renaissance Capital in Moscow and former adviser in the central bank’s Monetary Policy Department. Given the geopolitical risks, it’s likely the central bank will keep increasing gold’s share of reserves, he said.
KEYS STATS ABOUT RUSSIA’S GOLD BUYING
- The central bank bought 274 tons of bullion last year, according to the World Gold Council.
- That’s worth more than $11 billion at average prices.
- Russia accounts for 40% of central bank gold buying and 6% of global demand.
- Gold accounts for about 19% of Russia’s foreign-exchange reserves, the highest level since 2000.
- Dollars represent 22% of the reserves, down from 46% in mid-2017.
A representative for Russia’s central bank declined to comment on its gold purchases.
Stock Market News
Lyft valued at $24.3 billion in first ride-hailing IPO
Lyft Inc was valued at $24.3 billion in the first initial public offering (IPO) of a ride-hailing startup on Thursday, raising more than it had set off to do as investors overlooked uncertainty over its path to becoming a profitable company.
Lyft’s IPO sets the stage for the stock market debut of larger rival Uber Technologies Inc, which Reuters has reported will kick off in April. Uber has been told by its investment bankers that it could be valued at as much as $120 billion.
The success of the IPO came despite Lyft’s steep loses, criticism of its dual-class share structure and some concerns over its strategy for autonomous driving, for fear of missing out on the company’s strong revenue growth.
“In a good market, people look beyond things. They don’t see the problems as much,” said Brian Hamilton, co-founder of data firm Sageworks, speaking before the pricing.
The ride-hailing industry is expected to grow rapidly in the coming years, as young millennials in big cities choose not to buy their own car. Yet the sector is fraught with questions about the future of automated driving, regulatory pushback and legal challenges over drivers’ pay and benefits.
Lyft’s valuation makes it the biggest company to go public since Alibaba Group Holding Ltd in 2014. It paves the way for other Silicon Valley companies seeking to float in the stock market this year, including Pinterest Inc, Slack Technologies Inc and Postmates Inc.
Lyft raised $2.34 billion its IPO. It said it priced 32.5 million shares, slightly more that it was offering originally, at $72, the top of its already elevated $70-$72 per share target range. Lyft started its IPO investor road show earlier this month with a target range of $62-$68 per share.
The stock is set to begin trading on the Nasdaq on Friday under the symbol “LYFT”.
The IPO market had a slow start in 2019 due to volatile markets at the end of last year and the government shutdown in January blocking U.S. regulators from processing new IPO applicants.
With start-ups like Lyft staying private for longer, there is a backlog of demand to allocate more money to stocks which are considered high-growth in order to diversify away from Wall Street’s FAANG trade which is made up of Facebook Inc, Amazon.com Inc, Apple Inc, Netflix Inc and Google parent Alphabet Inc.
Nevertheless, there are concerns among some investors that these IPOs may be coming at the peak of the market, when the benchmark S&P 500 Index has risen more than 200 percent since 2008.
“They’re buying at the top of a bull market that’s lasted for nine years,” said Roberts.
Asian Stocks Rise; U.S. Set for Months-Long Negotiations With China
Asian stocks rose in morning trade Friday as Sino-U.S. trade talks progressed but seemed destined to continue for some time.
The trade talks were in focus after White House economic adviser Larry Kudlow said the U.S. is prepared to negotiate with China for moths in order to reach a trade deal.
China’s Shanghai Composite and the Shenzhen Component gained 1.4% and 1.6% by 10:15 PM ET (02:15 GMT). Hong Kong’s Hang Seng Index rose 0.6%.
Japan’s Nikkei 225 advanced 1%. South Korea’s KOSPI edged up 0.2%.
Down under, Australia’s ASX 200 traded 0.4% higher.
The focus remained on the U.S.-China trade negotiations. In a speech in Washington on Thursday, Kudlow said negotiations could take a few more weeks, or even months.
“We have to get a great deal, as the president says, that works for the United States. That’s our principal interest,” he said.
Kudlow also said the U.S. may remove some of the tariffs on Chinese goods.
“We’re not going to give up our leverage,” he said. “It doesn’t necessarily mean that all of the tariffs would be kept in place. Some of the tariffs would be kept there. Again, when Bob Lighthizer comes back, he will illuminate all of us on that. That’s part of the negotiations and we’ll see.”
His comments eased investor worries that a lack of progress on talks could lead to an all-out trade war.
U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin began a two-days meeting with Chinese negotiators in Beijing on Thursday. Mnuchin told reporters that he had a “productive working dinner.” Officials are set to continue the discussions today.
Chinese Vice Premier Liu He will travel to Washington next to meet with U.S. negotiators as well as President Donald Trump, according to Kudlow.
Bitcoin Pushes $4,100 as Oil Futures See Losses
Most of the top 20 cryptocurrencies are reporting slight to moderate gains on the day by press time, as Bitcoin (BTC) stays over $4,000.
Bitcoin is up nearly half a percent on the day, trading at around $4,087, according to CoinMarketCap. Looking at its weekly chart, the current price is over 1 percent higher than $4,060, the price at which Bitcoin started the week.
Ethereum (ETH) is holding onto its position as the largest altcoin by market cap, which is at about $14.7 billion. The second-largest altcoin, Ripple (XRP), has a market cap of about $12.9 billion by press time.
ETH is also up by just half a percent over the last 24 hours. At press time, ETH is trading around $140, after having started the day at nearly the same price. On its weekly chart, Ethereum has seen its value increase about two percent.
Second-largest altcoin Ripple has gained the same half a percent over the 24 hours to press time, and is currently trading at around $0.31. Looking at the coin’s weekly chart, its current price is close to one percent lower than the price at which it started the week.
Among the top 20 cryptocurrencies, the one reporting the most notable growth is Tezos (XTZ), which is up about 15 percent on the day. Tezos has grown nearly 12 percent this week, following a number of developments for the platform.
The total market cap of all cryptocurrencies is currently equivalent to $143.2, which is nearly 3.5 percent higher than $138.3 billion, the value it saw one week ago.
In traditional markets, the stock market is seeing discreet gains so far today, with the S&P 500 up 0.13 percent and Nasdaq up 0.22 percent. The CBOE Volatility Index (VIX), on the other hand, has lost a solid almost two percent on the day at press time.
Earlier today, CNBC reported that the stocks fell as the trade talks between the United States and China resumed and the fears of the economy slowing down endure.
Major oil futures and indexes are mostly down today, with WTI Crude down 0.72 percent, Brent Crude down 0.83 percent and Mars US down 1.34 percent. Opec Basket on the other hand is up by 0.18 percent, and the Canadian Crude Index has seen its value decrease by 0.66 percent, according to OilPrices.
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