MTS Economic News_20190723
23 Jul 2019
· Sterling was on the back foot on Tuesday as investors worried Boris Johnson, the front-runner to become the UK’s next prime minister, would trigger a “hard Brexit” from the European Union, widely seen as a major risk for the British economy.
The euro briefly touched the lowest in five weeks due to growing expectations European Central Bank President Mario Draghi will signal a rate cut in September at a policy meeting later this week to keep inflation expectations on track.
The euro briefly fell to $1.1191, the lowest since June 19, as traders awaited the ECB’s policy meeting and Draghi’s comments at a news conference on Thursday.
Traders see a 43% probability that European policymakers will lower a key deposit rate by 10 basis points to minus 0.50% to combat risk from global trade tensions.
Economists surveyed by Reuters expect the ECB to change its forward guidance to pave the way for a rate cut in September.
The dollar traded at 108.14 yen. The dollar index was marginally higher at 97.435.
· Expectations that the European Central Bank and Federal Reserve will cut interest rates boosted stocks globally, while the pound sagged on worries that likely new prime minister Boris Johnson would lead Britain into a no-deal exit from the European Union.
In currency markets, the pound was 0.2% lower at $1.2449 and headed for its third session of losses.
· EUR/USD fell below 1.12 in Asia and could extend losses in Europe, courtesy of the dovish European Central Bank (ECB) expectation and the weakness in German Bund yields.
From a technical perspective, the pair already seems to have found acceptance below the 1.1200 handle and thus, remains vulnerable to extend the ongoing depreciating move. A follow-through selling below the 1.1180 area will reaffirm the bearish outlook and accelerate the slide further towards the 1.1130 intermediate support en-route yearly lows, closer to the 1.1100 round figure mark.
On the flip side, the 1.1210-20 region now becomes immediate resistance, above which the pair might attempt a move towards testing the 1.1250-55 intermediate resistance before eventually aiming to retest the 1.1280-85 supply zone. Only a decisive move beyond the mentioned barriers might negate the bearish outlook and set the stage for a meaningful recovery towards the 1.1330-40 region.
· UBS announced a net profit of $1.4 billion for the second quarter of 2019. This compared to a net profit of 1.28 billion Swiss francs ($1.29 billion) in the second quarter of 2018.
The Swiss-lender announced that this is the highest second-quarter net profit since 2010. The profit boost comes in despite declines in both its investment bank and wealth management divisions.
· Boris Johnson is expected to be elected leader of Britain’s governing Conservative Party and the country’s next prime minister on Tuesday, tasked with following through on his “do or die” pledge to deliver Brexit in just over three months time.
Voting closed at 1600 GMT on Monday and the result is due to be announced on Tuesday morning. The winner will formally take over as prime minister on Wednesday afternoon, succeeding Theresa May, who stepped down over her failure to get parliament to ratify her Brexit deal.
· The Japan-South Korea conflict could push up the price of your next smartphone.
Japan has restricted exports to South Korea of three chemicals that are being used for making semiconductors and display screens.
Tokyo’s global dominance of those materials will make it difficult for Seoul to find alternatives when their supplies are disrupted by the curbs.
As a result, South Korean tech manufacturers Samsung Electronics and SK Hynix could fail to meet production deadlines.
That’s bad news for their customers, which include large tech companies such as Apple and Huawei.
· China’s industry ministry said on Tuesday that “arduous efforts” will be needed to achieve this year’s industrial output growth target, as trade protectionism weighs on exports and clouds the outlook for the world’s second-largest economy.
Beijing has said it can still meet its 2019 growth target of between 6% and 6.5% and continues to roll out stimulus measures to prop up activity.
Output growth fell to a 17-year low of 5.0% in May from a year earlier, but rebounded to 6.3% in June.
· The South Korean military fired hundreds of warning shots at a Russian military aircraft that entered South Korean airspace on Tuesday, defense officials in Seoul said, with Chinese military aircraft also entering South Korean airspace.
It was the first time a Russian military aircraft had violated South Korean airspace, an official at the Ministry of National Defense in Seoul said.
There was no immediate public comment from Russia. China’s foreign ministry did not respond immediately to a Reuters request for comment.
· Russia’s Ministry of Defence on Tuesday denied that its strategic bombers had violated South Korean air space and accused South Korean jets of carrying out dangerous maneuvers that threatened its aircraft, the RIA news agency reported.
Defense officials in Seoul said earlier that the South Korean air force had fired hundreds of warning shots at a Russian military aircraft that illegally entered South Korean airspace on Tuesday.
· Amid rising tensions in the Gulf, Iran is pushing the boundaries to see how far it can go — but U.S. President Donald Trump has so far not been “compelled” to retaliate militarily, according to analysts.
That could change if Tehran crosses the “red line” — which may include deaths or injuries of American personnel, they said, warning of its dangers.
· Oil prices edged up on Tuesday on concerns about possible supply disruptions in the Middle East, but a weaker demand outlook kept a lid on gains, helped by a vow by the International Energy Agency (IEA) to keep global markets adequately supplied.
Brent crude LCOc1 futures climbed 29 cents, or 0.5%, to $63.55 a barrel by 0643 GMT. The international benchmark rose more than 1% in the previous session, following Iran’s seizure of a British tanker last week that stoked fears of supply disruptions from the energy-rich Gulf.
West Texas Intermediate (WTI) crude CLc1 futures were up 20 cents, or 0.4% at $56.42 per barrel.
· “Downward revisions on global oil demand, along with rising challenges in the macroeconomic environment, have capped bullish gains for oil prices,” said Benjamin Lu Jiaxuan, commodities analyst at Singapore-based Phillip Futures.
Meanwhile, the IEA said it was closely monitoring developments in the Strait of Hormuz as relations between Iran and Britain remain tense.
“The IEA is ready to act quickly and decisively in the event of a disruption to ensure that global markets remain adequately supplied,” it said, adding that executive director Fatih Birol has been in talks with IEA members, associate governments and other nations.
Reference: Reuters, CNBC, FX Street