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Dollar soars near 38-year yen peak as Trump risk lifts US yields

Dollar soars near 38-year yen peak as Trump risk lifts US yields

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Dollar soars near 38-year yen peak as Trump risk lifts US yields

The US dollar hovered near an almost 38-year high to the yen on Tuesday following a surge in Treasury yields as investors contemplated the potential for a second Donald Trump presidency.

The euro remained firm as rival French political parties joined forces to try and prevent the far-right National Rally (RN) from taking power.

Equities were broadly mixed in Asia, while crude oil edged higher following a strong rally in the previous session.

Later in the day, US Federal Reserve Chair Jerome Powell will speak at an event hosted by the European Central Bank, bringing the path for US monetary policy into focus in a week that will see several closely watched employment reports including Tuesday’s JOLTS job openings data, a Fed favourite.

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The dollar was slightly stronger at 161.56 yen on Tuesday, keeping close to the overnight high of 161.72 yen, a level not seen since December 1986.

The currency pair is highly sensitive to US yields, and the benchmark 10-year Treasury yield climbed nearly 14 basis points to 4.479% to start the week. Analysts attributed the move to expectations for Trump winning the presidency, resulting in higher tariffs and government borrowing. The 10-year yield stood at 4.4534% in Tokyo hours.

President Joe Biden’s faltering debate performance last week was the trigger behind the yield surge, but an additional catalyst came with the Supreme Court’s ruling on Monday that Trump has broad immunity from prosecution over attempts to overturn his 2020 election loss, said Chris Weston, head of research at Pepperstone.

“Bond traders have an eye on Trump’s increasing odds of taking the White House, and the market senses Trump 2.0 will be inflationary,” Weston said.

The yen’s malaise has traders on high alert for Japanese intervention after authorities spent some 9.8 trillion yen ($60.65 billion) in the days spanning late April and early May, when the currency plunged to 160.82 per dollar.

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Meanwhile, the euro held its ground against the greenback, easing 0.07% to $1.0733, after pushing as high as $1.0776 on Monday for the first time since June 13.

Investors expressed relief that Marine LePen’s anti-immigrant, eurosceptic RN party did not take a larger share of the first-round vote at the weekend.

Now the party’s opponents are coalescing to tactically remove candidates from the second-round vote on Sunday so only the best-placed candidate – irrespective of party – faces off against the RN’s representative. The deadline to drop off the ballot is later on Tuesday.

Asian stocks started Tuesday with a muted performance that lacked overall direction.

Banks helped lift Japan’s Nikkei 0.6% amid rising domestic bond yields, and property shares buoyed Hong Kong’s Hang Seng which rose 0.3%.

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But mainland blue chips were flat, while the tech-heavy Taiwan benchmark declined 0.8% and South Korea’s Kospi sagged 0.6%.

MSCI’s broadest index of Asia-Pacific shares outside Japan drooped 0.2%.

Elsewhere, crude oil ticked higher following gains of about 2% on Monday, as the northern hemisphere summer driving season gets underway.

Brent futures added 0.21% to $86.78 per barrel, building on a 1.9% overnight rally. US West Texas Intermediate (WTI) crude rose 0.13% to $83.49, extending a jump of 2.3% from the previous session. 

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Oil market likely to be in surplus next year, Morgan Stanley says

Oil market likely to be in surplus next year, Morgan Stanley says

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Oil market likely to be in surplus next year, Morgan Stanley says

The crude oil market is currently tight but next year will likely be in surplus, with Brent prices declining into the mid-to-high $70s range, Morgan Stanley said.

The tightness will hold for most of the third quarter, the bank said in a note dated on Friday, but equilibrium will return by the fourth quarter, “when seasonal demand tailwinds abate and both OPEC and non-OPEC supply return to growth.”

Three sources told Reuters last week that OPEC+ is unlikely to recommend changing the group’s output policy at a mini-ministerial meeting next month, leaving in place a plan to start unwinding one layer of oil output cuts from October.

Morgan Stanley said it expects OPEC and non-OPEC supply to grow by about 2.5 million barrels per day (bpd) in 2025, well ahead of demand growth.

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Refinery runs are set to reach a peak in August this year, and unlikely to return to that level until July 2025, it said.

Morgan Stanley left its forecast for Brent crude prices for the third quarter of 2024 unchanged at $86 per barrel. Earlier this month, Goldman Sachs also maintained its projection for the quarter at an average Brent price of $86 a barrel.

Brent crude prices on Monday were up 0.54% at $83.08 a barrel by 0535 GMT, and US West Texas Intermediate crude futures were up 0.54% at $80.56. 

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Asia stocks skid as China trims rates; Biden steps aside

Asia stocks skid as China trims rates; Biden steps aside

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Asia stocks skid as China trims rates; Biden steps aside

Asian shares slid anew on Monday, getting little lift from a surprise rate cut by China’s central bank, while Wall Street futures firmed in the wake of President Joe Biden’s decision to bow out of the election race.

The People’s Bank of China cut short-term rates by 10 basis points, which pulled down long-term borrowing costs and bond yields. The move follows Beijing’s release of a policy document on Sunday outlining its ambitions for the economy.

Investors seemed underwhelmed with the move, in part as it only emphasised how weak the economy was, and Chinese blue chips slipped 0.9% along with the yuan.

“Basically all the fundamental factors point to the fact that China needs a lower rate environment, especially the real rate is really high…in this kind of disinflationary environment,” said Gary Ng, Asia-Pacific senior economist at Natixis in Hong Kong.

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“I think the general trend is that it’s pretty much in line with the fact that the economy is not that great, and it seems that there’s a bit of urgency from the authorities to stimulate it now.”

MSCI’s broadest index of Asia-Pacific shares outside Japan lost another 0.7%, having shed 3% last week.

Japan’s Nikkei dropped 1.2% and South Korea’s benchmark index fell 1.3%. Taiwan was having another tough session with a loss of 2.3% amid concerns about US restrictions on chip sales.

Investors seemed much better prepared for news President Biden would drop out of the election race and endorse Vice President Kamala Harris for the Democratic ticket.

Online betting site PredictIT showed pricing for a victory by Donald Trump had fallen 4 cents to 60 cents, while Harris climbed 12 cents to 39 cents. California governor Gavin Newsom, another possible Democratic challenger, trailed at 4 cents.

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Markets took the news in their stride, with S&P 500 stock futures nudging up 0.1%, while Nasdaq futures added 0.2%. Futures for 10-year Treasuries rose 2 ticks, while 10-year bond yields dipped 2 basis point to 4.22%.

EUROSTOXX 50 futures added 0.5%, while FTSE futures firmed 0.4%.

“As Trump’s polling results have lifted, markets have favoured positions that anticipate more trade barriers and possibly higher inflation,” ANZ analysts said.

“Some polls have Harris performing better than Biden against Trump, and the Democrats will be hoping the next polls feature a Harris-driven bump.”

EYE ON EARNINGS

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A packed week of corporate earnings will see Tesla and Google-parent Alphabet kick off the season for the “Magnificent Seven” megacap group of stocks.

Others reporting include General Electric, General Motors, Ford and Lockheed Martin.

The tech sector is projected to increase year-over-year earnings by 17%, while profit for the communication services sector is seen rising about 22%.

Such gains would outpace the 11% estimated rise for the S&P 500 overall, according to LSEG IBES.

Europe’s biggest banks also report this week, with eyes on whether the gains from higher interest rates have run out of steam and if recent political drama is weighing on sentiment.

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A busy week for economic news will culminate with the Federal Reserve’s favoured inflation measure out on Friday. The core personal consumption expenditures index is seen rising 0.1% in June, pulling the annual pace down a tick to 2.5%.

Markets are wagering heavily that a benign outcome will firm the case for a September rate cut, which futures are pricing as a 97% chance.

Also due are figures for advance gross domestic product that are forecast to show growth picking up to an annualised 1.9% in the second quarter, from 1.4% in the first.

The closely watched Atlanta Fed GDPNow indicator points to growth of 2.7%, suggesting some risk to the upside.

The Bank of Canada meets on Wednesday and is considered almost certain to cut its rates by a quarter point to 4.5%.

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In currency markets, the dollar gave back just a little of last week’s safe haven gains as the euro edged up 0.1% to $1.0886. The dollar was a fraction softer on the Japanese yen at 157.27.

In commodity markets, gold held at $2,406 an ounce and short of last week’s record high of $2,483.60.

Oil prices inched higher, with scant sign of progress on a ceasefire deal in Gaza as Israeli forces battled Palestinian fighters in the southern city of Rafah on Sunday.

Brent gained 44 cents to $83.07 a barrel, while US crude rose 41 cents to $80.54 per barrel.

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FinMin Aurangzeb set to visit China to reschedule $15 loans

FinMin Aurangzeb set to visit China to reschedule $15 loans

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FinMin Aurangzeb set to visit China to reschedule $15 loans

 In order to reschedul energy loans worth $15 billion, Finance Minister Muhammad Aurangzeb is all set to visit China for three days tomorrow.

The minister will discuss the loan rescheduling with the Chinese authorities. The minister will also discuss China’s energy circular debts worth Rs500 billion.

Read more: Finance Minister Aurangzeb leads delegation to US for IMF talks on new bailout package

The minister will also discuss Panda Bonds during the visit to get the $30 million bonds in China.

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