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DAILY BRIEF

 

 

The Daily Brief is a free email sent out each morning with information about overnight market movements and insights into the issues of the day. The brief is free and will help you keep an up-to-the-minute eye on the currency markets.

 

18 / 02 / 20

LONDON OFFICE

 

British Pound

FXStreet: The GBP/USD pair closed the previous week 150 pips higher as the British pound gathered strength after Prime Minister Boris Johnson appointed Rishi Sunak, who is expected to ramp up fiscal spending, as the new  Chancellor of the Exchequer. However, the pair started the new week on the back foot and fell to a daily low of 1.3003 before going into a consolidation phase. As of writing, the pair was down 0.25% on the day at 1.3010. Earlier in the day, PM Johnson's spokesman said that they were not seeking "anything special" from the EU in trade negotiations and this stance brought in modest selling pressure on the British pound. "We are ready to negotiate now, we want the relationship to be based on friendly cooperation," the spokesman added.


On the other hand, the greenback preserves its strength at the start of the week and makes it difficult for the pair to stage a rebound. Although US financial markets which closed in observance of the Presidents' Day, the US Dollar Index, which added 0.5% last week, is staying at its highest level since early October at 99.17. On Tuesday, the UK's Office for National Statistics (ONS) will release the Claimant Count Change and ILO Unemployment Rate data. Analysts' see the Claimant Count Change to come in at +22.6K in January and expect the ILO Unemployment Rate to remain unchanged at 3.8%.

 

US Dollar

Reuters: The euro fell towards a three-year low versus the dollar ahead of a highly watched German survey on Tuesday, which is expected to show a sharp slump in investor confidence and fuel growing pessimism about the outlook for Europe’s largest economy. Financial markets clung to tight ranges following a U.S. public holiday on Monday, shifting the investor focus to European news and developments in the coronavirus crisis. Among Asian currencies, the Australian dollar slipped below the 67 U.S. cent level after minutes from the central bank’s last meeting revived the prospect of policy easing while the Chinese yuan was weighed by worries about the economic impact of the coronavirus. Sentiment for the euro has worsened dramatically this month after weak manufacturing and gross domestic product data from Germany, Europe’s largest economy, suggested that the euro zone is more vulnerable to external shocks that previously thought.


“The euro is close to testing an important support level at $1.08 due to the diverging economic outlook between the euro zone and the United States,” said Junichi Ishikawa, senior foreign exchange strategist at IG Securities in Tokyo. "It looks a little oversold, so in the very short-term there could be a bounce, but the euro’s fundamentals still point more to the downside.” The euro fell 0.12% to $1.0827 in Asia, close to its lowest since April 2017. Since the start of February, the single currency has lost 2.4% versus the greenback as disappointing economic data raised concerns that euro zone monetary policy will have to remain accommodative for much longer. The euro’s next hurdle is the release of Germany’s ZEW survey later on Tuesday, which is forecast to show economic sentiment slipped from the highest since July 2015. The onshore yuan was a tad lower at 6.9859 versus the dollar, unsettled by a decline in Chinese shares after Apple Inc said it will not meet sales targets because the virus epidemic has slowed production and demand in China. China’s Hubei province, considered the epicentre of the coronavirus outbreak, said new cases of the illness fell slightly to 1,807 on Monday from 1,933 the previous day. Currency traders are cautiously monitoring new data on the virus given uncertainty about the actual number of cases and difficulties in estimating when the epidemic will peak.

SOUTH AFRICA OFFICE

 

South African Rand

EWN: The rand weakened on Monday, as ratings agency Moody’s cut its forecast for the country’s economic growth due to lacklustre private sector demand at home and power cuts. As of 1510 GMT, the rand was 0.4% weaker at 15.00 against the dollar. Moody’s cut its 2020 GDP growth forecast to 0.7% from a forecast of 1.5% set in September, due in part to the detrimental impact of widespread power outages on manufacturing and mining activity. Moody’s is the last of the major international agencies to keep an investment-grade rating on the sovereign and is scheduled to review that assessment in March. South African President Ramaphosa acknowledged in his annual address to parliament on Thursday that growth had stalled, promising to fix its strained public finances and procure more renewable energy to address a power crisis.


Investors await Finance Minister Tito Mboweni’s 2020 budget presentation next week. “All eyes will be on Tito Mboweni speech which will be closely scrutinised for further details on how the government plans to jumpstart the South African economy,” said Lukman Otunuga, senior research analyst at FXTM. “The budget speech will be a major risk event that may influence whether South Africa can save or lose its last investment-grade credit rating,” Otunuga added. On the bourse, stocks were lifted by a positive earnings report from Anglo American Platinum (Amplats) and Friday’s trading statement from Sibanye-Stillwater. Amplats, which also has operations in Zimbabwe, jumped 5.4% to R1,329.99 after it said higher metal prices had driven its annual headline earnings per share - the main profit measure used in South Africa - nearly 2-1/2 times higher at R70.87, versus R28.93 a year earlier. Sibanye continued to surge after saying on Friday it expects to swing to a 433 million rand profit in the year ended December, versus a 2.5 billion rand loss in 2018, due to significantly higher platinum group metals and gold prices and the inclusion of Lonmin’s Marikana operations. Shares in the miner surged to a 3-1/2-year high, closing 5.89% firmer at R44.58. Amplats and Sibanye topped the Johannesburg All-Share index as well as the Top-40 index. The Johannesburg All-Share index ended the day 0.56% firmer at 58,187 points, while the Top-40 index climbed 0.59% to 52,357 points. Government debt weakened, with the yield on the benchmark bond due in 2030 adding 5 basis points to 8.9%.

 

Global Markets

Reuters: Asian shares fell and Wall Street retreated from record highs on Tuesday after Apple Inc said it will not meet its revenue guidance for the March quarter as the coronavirus outbreak slowed production and weakened demand in China. The warning from the most valuable company in the United States sobered investor optimism that economic stimulus by Beijing and other countries would protect the global economy from the effects of the epidemic. S&P500 e-mini futures dipped as much as 0.3% in Asian trade. MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.65% while Tokyo's Nikkei slid 1.0%. Shanghai shares dipped 0.2%, having gained in nine of the past 10 sessions largely on hopes for policy support by Beijing. China’s central bank cut the interest rate on its medium-term lending on Monday, which is expected to pave the way for a reduction in the benchmark loan prime rate on Thursday.


But sentiment was shaken when Apple told investors its manufacturing facilities in China have begun to re-open but are ramping up more slowly than expected, reinforcing signs of a broader hit to businesses from the epidemic. “Apple is saying its recovery could be delayed, which could mean the impact of the virus may go beyond the current quarter,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities. “If Apple shares were traded cheaply, that might not matter much. But when they are trading at a record high, investors will be surely tempted to sell.” Asian tech shares were also hit. Samsung Electronics dropped 2.1%, Taiwan Semiconductor Manufacturing Co (TSMC) lost 1.7% and Sony shed 2.6%. In China, the number of new Covid-19 cases fell to 1,886 on Monday from 2,048 the day before. The World Health Organization cautioned on Monday, however, that “every scenario is still on the table” in terms of the epidemic’s evolution. As China’s authorities try to prevent the spread of the disease, the economy is paying a heavy price. Some cities remained in lockdown, streets are deserted, and travel bans and quarantine orders are in place around the country, preventing migrant workers from getting back to their jobs. Bonds were in demand, with the 10-year U.S. Treasuries yield falling 1.0 basis point to 1.578% after a U.S. market holiday on Monday. Safe-haven gold also rose 0.18% to $1,584.80 per ounce. In the currency market, the yen ticked up 0.1% to 109.75 yen per dollar while the risk-sensitive Australian dollar lost 0.4% to $0.6707. The yuan was steadier for now, trading at 6.9866 yuan per dollar. The euro, grappling with worries about sluggish growth in the euro zone, edged down 0.1% to $1.0836, near its 33-month low of $1.0817 touched on Monday. Oil prices also dipped. West Texas Intermediate (WTI) crude rose as high as $52.41 per barrel, before giving up gains to be $51.96 per barrel, down slightly on the day.

 

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