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TradeFred Daily Briefing
Tue 07-01-2020 12:00

In Brief:

  • Swissie holds gains while Yen falters
  • Brent Crude & WTI retreat
  • Global shares recover
  • Eurozone business activity close to stagnation

The Swiss Franc held gains against the US Dollar on Tuesday as traders sought save-havens amid heightened anxiety about potential Iranian retaliation to a US drone strike that killed its most prominent military commander. The Yen, another safe-haven currency, pulled back from a three-month high versus the Greenback, but sentiment remains fragile due to the increasing worries about armed conflict between the United States and Iran.

Highlighting the concerns, the US currency nursed losses against Sterling and the Euro as the emergence of a new geopolitical flashpoint led some investors to reassess their tolerance for risk at the start of the new year. Meanwhile, Iran’s currency is feeling the pain of rising tension with the US. The Rial weakened to its lowest level in more than six months on the black market following the killing of Qassem Soleimani, one of Iran’s most senior commanders, by the US. The currency has depreciated 4.3% to 139,500 per dollar since the news of Soleimani’s death in a Baghdad drone strike on Jan. 3 emerged, which could further hit Iranians already suffering from high inflation. Tehran’s stock market has also declined.

Oil prices retreated on Tuesday in Asia despite continuing tension between the US and Iran. US Crude Oil WTI Futures dropped 1.1% to $62.59 by 11:40 PM ET (03:40 GMT). International Brent Oil Futures also fell 1.1% to $68.12. Oil prices surged on Monday following the news that a US airstrike killed a top Iranian general, sparking an escalation in conflict between the two countries.

Gold prices fell on Tuesday in Asia, easing from the highest level in more than six years following the knee-jerk reaction toward news of escalating US-Iran tensions. Gold Futures traded 0.5% lower to $1,560.75 by 11:13 PM ET (03:13 GMT). Gold prices have rallied more than 2% over the past two days, driven by increasing safe-haven demand amid America’s standoff with Iran.

Meanwhile, global equities rebounded today, with Chinese stocks gaining almost 1% in morning trade. China will encourage the development of annuities and endowment insurance to diversify people's investment into the stock market, instead of direct share purchases from savings, the government-backed Securities Times said. "The key consideration is to cultivate a multi-layer capital market," the newspaper reported, quoting Xiao Yuanqi, spokesman of China Banking and Insurance Regulatory Commission (CBIRC). "There'll be part of savings flows to the institutional investors for sure, then the professional investors can allocate those funds to bonds and equities investment," Xiao had said in a media briefing on Monday.

Asian markets rebounded on Tuesday in Asia as global leaders urged the US and Iran to exercise restraint. China’s Shanghai Composite and the Shenzhen Component traded 0.4% and 0.7% higher by 10:40 PM ET (02:40 GMT). Hong Kong’s Hang Seng Index climbed 0.6%, while South Korea’s KOSPI gained 0.7%.

Elsewhere, Japan’s Nikkei 225 advanced 1.3% even after the country’s service sector recorded its deepest contraction in more than three years in December. The final seasonally adjusted Jibun Bank Japan Services Purchasing Managers' Index (PMI) fell to 49.4 in December from 50.3 in November, declining to its lowest level since September 2016.

Nissan Motor Co Ltd on Tuesday said former Chairman Carlos Ghosn's flight from Japan would not affect its policy of holding him responsible for "serious misconduct", renewing its charges against him a day before he was due to speak publicly. Ghosn became an international fugitive after he revealed last week that he had fled to Lebanon to escape what he called a "rigged" justice system in Japan, where he faces charges relating to alleged financial crimes. The former Nissan and Renault SA chairman has denied all charges against him and said he was the victim of "backstabbing" and a "conspiracy" that wanted to derail his efforts to bring the two automakers toward a merger.

Australian job advertisements suffered their largest monthly drop in seven months in December as bushfires across the country's two most populous states took a toll on activity. Tuesday's figures from Australia and New Zealand Banking Group showed total job ads slid 6.7% in December, from November when they fell 1.8%. Job ads averaged 142,569 in December, down 18.8% from a year earlier and the lowest reading since April 2016. "The number of job ads declined by more than we would expect for that time of the year, suggesting that the escalating bushfire crises had an impact," said Catherine Birch, a senior economist at ANZ.

Israel received a record number of tourist visits in 2019 but growth could be slowed this year due to cuts in spending on advertising to promote the country as a destination, the tourism ministry said on Monday. The announcement came at a time of heightened concern over security in the Middle East after the United States killed a top Iranian general. However, a tourism ministry official said the ministry was no more concerned about the potential impact of geopolitics on tourism than usual. Israel recorded a 10.6% rise in tourism last year to 4.55 million visits, bringing in 22 billion Shekels ($6.3 billion) in revenue.

Optimism among companies in Britain's dominant services sector surged after Prime Minister Boris Johnson's landslide election win last month, despite continued economic stagnation, a business survey showed on Monday. The business expectations component of the IHS Markit/CIPS UK Services Purchasing Managers' Index (PMI) hit its highest level since September 2018, while order books increased for the first time in four months. The overall PMI in December improved to 50.0 from a preliminary reading for the month - based on responses before the election - of 49.0. It was also higher than November's 49.3.

Eurozone business activity remained close to stagnation at the end of last year, a survey showed on Monday, as an upturn in services activity only partially offset a continued decline in the bloc's manufacturing industry. IHS Markit's final Eurozone composite Purchasing Managers' Index (PMI), seen as a good indicator of economic health, nudged up to 50.9 in December from November's 50.6. That beat a preliminary estimate which suggested no change from the previous month but remained close to the 50 mark separating growth from contraction.

Japan’s record corporate bond issuance is likely set to slow ahead, but a boom in environmentally-friendly debt could limit the downside. Companies have sold 13 trillion Yen ($120 billion) of bonds this fiscal year ending March 31, already the most ever with three months still remaining in the period, Bloomberg-compiled data show. That red-hot pace of issuance probably won’t be repeated in fiscal 2020 because borrowing costs may rise, while fewer notes will mature during the period, reducing corporate demand to sell bonds, according to underwriters.

The bond-sale frenzy has increased the cash Japan Inc holds even more to a record 513.2 trillion yen. While the plentiful funding hasn’t translated to a major rise in capital spending, companies may be using the cash more to boost shareholder returns including stock buybacks, according to bankers. Rising interest in green notes may also help Japan catch up with other advanced economies in sales of the debt to finance environmental projects.

See Also

In Brief:

  • Yen holds firm while riskier Asian currencies soften
  • Oil prices slip on news that tariffs will remain despite US-China trade deal
  • Gold snaps losing streak
  • Amazon to invest $1bn to bring Indian SMEs online

The safe-haven Yen held firm and riskier Asian currencies softened a little on Wednesday, as currency investors awaited the signing of the US-China trade deal with trepidation. The formal agreement is aimed at drawing a line under 18 months of tit-for-tat tariff hikes that have hurt global growth, but it will not end the trade dispute between the world's two largest economy. The USD/CNY pair lost 0.2% to 6.8943 by 12:01 AM ET (04:01 GMT).

TradeFred Daily Briefing

TradeFred Daily Briefing