Morning Report

Dollar on back foot before Fed, markets eye policy outlook

The dollar remained under pressure on Tuesday as markets counted down to a crucial Federal Reserve meeting amid speculation it will soon hit the pause button to its monetary tightening cycle in the face of rising risks to global growth.

A sell-off in equities overnight extended into the Asian morning as investors fretted over a drum roll of weak data globally, reinforcing bets the Fed’s widely expected rate hike on Wednesday would usher in a slowdown, or even a pause, to three years steady rate increases.

While the U.S. central bank’s latest median dot plot projections from September indicated its willingness to raise rates three times in 2019, the interest rate futures market is pricing in only one more rate hike for 2019.

The dollar index was flat at 97.1 after losing 0.4 percent on Monday.

In a tweet overnight, U.S. President Donald Trump said that it was ‘incredible’ that the Fed is even considering raising rates given the global economic and political uncertainties.

The yen and the Swiss franc clocked gains of 0.5 percent each overnight and held firm versus the dollar in early Asian trade.

In Asia, investors are looking to a major speech by President Xi Jinping on Tuesday to mark the 40th anniversary of China’s market reforms. China is also scheduled to hold its annual Central Economic Work Conference this week.

The greenback lost 0.06 percent versus the offshore Chinese yuan, changing hands at 6.8957.

The euro was also up marginally at $1.1350, having recovered all of its losses from Monday when it hit by weak euro zone data.

Commodity currencies such as the Canadian dollar and Norwegian crown were under pressure as oil prices tumbled overnight on signs of oversupply in the United States and on demand concerns stoked by a slowing global economy.

The Canadian dollar was fetching $1.3413 on the U.S. currency, down 0.06 percent.

The People’s Bank of China (PBOC) set the yuan reference rate at 6.8854 vs Monday’s fix of 6.8908.

Asian stocks decline ahead of Xi’s speech on China reforms

  • Australian, Japanese and South Korean stocks slipped in the morning.
  • Chinese President Xi Jinping is set to deliver a speech on Tuesday morning at the 40th anniversary of the country’s economic reforms.
  • In U.S. market action, all 30 stocks in the Dow and all 11 sectors in the S&P 500 posted losses on the day.

Stocks in Asia were lower in on Tuesday morning following an overnight sell-off on Wall Street. Investors are keeping a close watch on a major speech by Chinese President Xi Jinping as China prepared on Tuesday to commemorate the 40th anniversary of its economic reforms and opening up.

Japan’s Nikkei 225 fell 1.55 percent in early trade while the Topix index declined by 1.56 percent to trade below 1,572.33 — its lowest levels since June 2017,

Over in South Korea, the Kospi slipped around 0.22 percent .The ASX 200 in Australia also fell in morning trade and was lower by 1.26 percent, with almost all sectors seeing losses.

40th anniversary of China reforms

President Xi will be delivering a speech as China marks the 40th anniversary of the country’s economic reforms.

Wall Street takes a dive

In the U.S. markets, stocks fell sharply ahead of the Federal Reserve Bank’s anticipated rate hike this week.

The S&P 500 fell 2 percent to 2,545.94 — its lowest close for 2018. The Dow Jones Industrial Average also plunged 507.53 points to close at 23,592.98, ratcheting up a combined two-day loss of more than 1,000 points.

All 30 stocks in the Dow and all 11 sectors in the S&P 500 posted losses on Monday.

The Nasdaq Composite also saw declines, falling 2.2 percent to end the trading day at 6,753.73.

The Cboe Volatility Index — one of Wall Street’s gauges of market fear — rose above 25 and volume for the stock market was heavier than usual.

*U.S. oil prices drop 1 percent on oversupply fears*

U.S. oil prices fell 1 percent on Tuesday after slipping below $50 a barrel in the previous session, with reports of a big climb in U.S. inventories and forecasts of record shale output stoking worries about oversupply.

Concerns around future oil demand amid weakening global economic growth and doubts on the impact of planned OPEC-led production cuts were also hurting prices, traders said.

U.S. West Texas Intermediate (WTI) crude futures were at $49.35 per barrel , down 1.06 percent, or 53 cents, from their last settlement.

Oil production from seven major U.S. shale basins is expected to surpass 8 million barrels per day (bpd) by the end of the year, the U.S. Energy Information Administration said in a monthly report on Monday.

Inventories at the U.S. storage hub of Cushing, Oklahoma, rose by more than 1 million barrels from Dec. 11 to 14.

Supply curbs agreed by the Organization of the Petroleum Exporting Countries (OPEC) and its Russia-led allies might not bring about the desired results as U.S. output goes on increasing and as Iran keeps pumping out more oil.

China’s November retail sales grew at their weakest pace since 2003 and industrial output rose the least in nearly three years as the economy lost further momentum.

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