Market View

[mirza ally]

Asia Stocks weaker and dollar slip due to FED weigh

Asian stocks were slightly weaker early on Monday, following Wall Street's declines and the G20's decision to drop a pledge to avoid trade protectionism, while the Federal Reserve's seemingly dovish stance last week continued to drag the dollar lower.

MSCI's broadest index of Asia-Pacific shares outside Japan (MIAPJ0000PUS) was fractionally lower. Japan is closed for a holiday.

On Friday, Wall Street was flat to negative, dragged lower by bank shares that fell along with Treasury yields.

Financial leaders from the world's biggest economies reiterated their warnings against competitive devaluations and disorderly foreign exchange markets at the meeting in the German town of Baden-Baden over the weekend.

But they failed to agree on a commitment to keep global trade free and open, highlighting a global shift toward protectionism.

"Essentially it's a result of the U.S. protectionist stance, something (President Donald) Trump has been very clear on and the market is well aware of this,".

"Importantly we saw other leaders such as (Japanese Prime Minister) Shinzo Abe and (German Chancellor) Angela Merkel come out publicly supporting free trade, and for now the protectionist stance remains constrained to the U.S. It would be more concerning if this began spreading to other countries."

The dollar, however, didn't react to the statements from the meeting, hovering close to its near-three-week low touched on Friday. It traded 0.1 percent lower at 112.57 yen

[Yousuf Ali]

San Francisco Federal Reserve (Fed) hints on central bank’s monetary policy program on his view:
Key points:
3 interest rate hikes are appropriate this year has not changed.
US economy running somewhat hot
Still, soft inflation shows monetary policy on ‘right path’
Jump in productivity growth that could deliver sustained 3-pct GDP growth not likely.
Hard to see how changes to tax rates, regulations could change prospects for long-term economic growth
Federal Reserve to release details of balance sheet plan in coming months, start trimming later this year
Balance sheet trimming should be gradual and on auto-pilot.

[Yousuf Ali]

US President Donald Trump is speaking at the White House, announcing that the US will withdraw from Paris Climate agreement.
U.S. will begin negotiations to re-enter Paris accord or new accord on terms fair to U.S.
U.S. will try to “make a deal that’s fair” on climate.
Paris climate accord disadvantages the United States to benefit for other countries.

[Yousuf Ali]

Majority US equity indices witnessed a weaker opening on Thursday amid renewed selloff in technology shares and reviving hopes for a faster Fed rate-tightening cycle.
The Federal Reserve on Wednesday raised interest rates by 25bps and indicated plans to shrink its $4.5 trillion massive balance sheet sometime this year. A more hawkish Fed tone seemed to fuel concerns overstretched valuations in technology stocks and weighed on the broader indices.
Dow is down 85 points to 21,289, while S&P 500 index lost around 18 points to 2,420. Meanwhile tech-heavy NASDAQ Composite tumbled nearly 80 points or more than 1% to 6,116.
Meanwhile, news report that the US president Donald Trump was being investigated for possible obstruction of justice added to the jitters and collaborated to Thursdays selling pressure.

[Yousuf Ali]

The BoE surprised markets with their hawkish shift, not because there was a sudden change in policy but instead of a single dissenter, there were now three MPC members calling for a rate hike, making the vote a 5-3 split (one MPC seat is currently vacant).
It is reasonable to conclude that the Bank’s hawkish signal represents some concerns about the soft position of the currency (relative to June 2016). Indeed, the MPC have made clear that they attribute the rise in inflation to be largely a function of the drop in the value of the pound. This hawkish cry from two additional members of the committee signals that while there is some tolerance for Brexit-related inflation, isn’t unlimited. For some, the trade-off between supporting growth and suppressing inflation may be shifting towards the latter of the options, and today’s vote therefore removes some upside potential for UK inflation – and may provide some support for the currency.

[Yousuf Ali]

U.S. President Donald Trump said that North Korea was a threat and they would confront it very strongly.
They are behaving in a very, very dangerous manner and something will have to be done
Trump said the United States was considering "severe things" for North Korea, but that he would not draw a "red line" of the kind that his predecessor, Barack Obama, had drawn but not enforced on the use of chemical weapons in Syria

[Yousuf Ali]

After gaining traction in the first half of the NA session, major equity indexes in the U.S. failed to preserve the momentum to close the day with small changes.

Technology sector seemed to be outperforming other areas on Monday ahead of the second quarter earnings season. The recent retreat seen in the tech stocks may have created an opportunity for investors to start repurchasing them as the sector is "expected to have had among the strongest earnings growth for the second quarter."

First significant earning reports will come from big banks including JPMorgan Chase, Wells Fargo, and Citigroup later this week. The Fed's approval of 34 largest U.S. banks' use of extra capital for stock buybacks and dividends is expected to support the financials for the remainder of the year.

The Dow Jones Industrial Average lost 5.8 points, or 0.03%, to close the day at 21,408.52, the S&P 500 added 2 points, or 0.08%, to 2,424.50 and the Nasdaq Composite gained 23.31 points, or 0.38%, to 6,176.39.

[Yousuf Ali]

Major equity indexes in the U.S. closed the day higher as the Fed Chairwoman Janet Yellen's remarks improved the market sentiment. Although the indexes eased back a little in the closing hour, this move seemed to be due to profit-taking.

Yellen, in the first part of her testimony, said that the Fed is planning to unwind its massive balance sheet later this year. She further added that the Fed is looking to continue to gradually tighten its policy but she also noted that they would not need to have to rise much further to reach a neutral level.

After reaching a record high during the day, the Dow Jones Industrial Average closed the day 123.07 points, or 0.57%, higher at 21,532.14. The S&P 500 added 15.38 points, or 0.63%, to 2,439.88, and the Nasdaq Composite gained 52.42 points, or 0.85%, to 6,238.90.

[Yousuf Ali]

US interest rates fell amid news the US healthcare reform bill had failed, helping drag the US dollar to a 10-month low. The top performing currency was the AUD.

Interest rates: US 10yr treasury yields fell from 2.31% to 2.26%, 2yr yields from 1.36% to 1.34%. Fed fund futures yields priced the chance of a December rate hike at around 43%.

Currencies: The US dollar index is down 0.5% on the day, to a 10-month low. EUR rose from 1.1520 to 1.1583 – a 14-month high. USD/JPY fell from 112.35 to 111.69. AUD was the day’s outperformer, surging after the RBA minutes and continuing overnight to 0.7943 – the highest level since May 2015. NZD nudged a little higher, recovering from its CPI disappointment, to 0.7373 – a five-month high. AUD/NZD pushed higher to 1.0801 – a two month high, and well above the 1.0650 level traded before the RBA minutes yesterday. Iron ore prices were also AUDNZD pair supportive, gaining 2% yesterday for a total 29% gain since mid-June."

"US: Jul NAHB homebuilder sentiment index slipped in July from 67 to 64 (vs 67 expected).

NZ: GDT dairy auction saw little price movement overall, up just 0.2%. WMP was up 0.3%, SMP down 3.2%, and the star performer lately - butter - up 3.4%."

[Yousuf Ali]

The dollar slumped to a thirteenth-month low against a basket of global currencies on Thursday, following a surge in the euro after European Central Bank president Mario Draghi said policymakers would discuss changes to its bond-buying scheme in September.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, fell by 0.59% to 94.05.
Investor expectations grew that the European Central Bank (ECB) is moving closer to tapering its bond-buying program after Draghi said the central bank saw signs of “unquestionable improvement” in the euro zone growth and indicated that policymakers would discuss changes to the bank’s ultra-loose monetary policy in September.
The euro jumped to near-two-year-highs of $1.1658 against the dollar, on the back of Draghi’s comments and remained on track to notch a five-month winning streak.
The single currency also made significant gains against sterling, with EUR/GBP rising to a seventh month high of £0.8961.
Elsewhere, GBP/USD fell to $1.2975, paring some of its recent gains against the greenback, despite UK retail sales data topping expectations.
Retail sales rose by 1.5% in the three months to the end of June, bouncing back from the 1.4% slide in sales sustained over the first three months of the year.
USD/CAD traded at $1.2571, down 0.27%, as a dip in oil prices failed to pressure the oil-sensitive Canadian dollar.
USD/JPY fell to Y111.77, down 0.15%, despite the Bank of Japan’s decision to maintain its current loose monetary policy measures.