· Dollar gains traction as trade fears knock bounding Aussie back
The dollar found some footing on Tuesday, rising against tearaway commodity currencies for the first time in June as investors paused to take profits.
However, a stronger yen pointed to some trepidation over the U.S. Federal Reserve’s next move at its two-day meeting starting later in the day.
The Australian dollar AUD=D3, which touched a 10-month top of $0.7043 early in the Asia session, retreated 1% to $0.6948 after China's education ministry warned students to carefully consider studying there amid tension between the trading partners.
The yen JPY= sat on the edge of that range at 107.97 per dollar, gaining as investors weighed the possibility of stepped-up bond buying - or even simply a very dovish outlook - from the Fed.
The pound GBP= edged up to a three-month high before retreating to $1.2700. The euro EUR= last sat steady at $1.1272.
A statement from the Fed is due at 1800 GMT on Wednesday followed by a news conference half an hour later.
It is not expected to change interest rate settings though in recent days futures pricing shows investors have abandoned expectations of rates dipping below zero next year.
· Treasury yields may break above one percent faster than BofA forecast due to stronger than expected labor market
It appears a major shift is underway in the bond market.
BofA Global Research’s Mark Cabana sees an improving jobs market adding fuel to the Treasury yield rally and providing some relief to the Federal Reserve ahead of Tuesday’s policy meeting.
“We were really thinking that the economy would still really struggle to rebound in Q2, slowly begin to grow in Q3 and then more meaningfully be rebounding in Q4,” the firm’s head of US rates strategy told CNBC’s “Trading Nation” on Monday. “But the risk is it all happens sooner, and that would be a pleasant surprise.”
Cabana’s forecast calls for the benchmark 10-year Treasury Note yield to hit one percent by year end and 1.25% by the end of 2021′s first quarter.
· Fed expands Main Street program to allow for both smaller and bigger loans
As the Federal Reserve prepares to start up its Main Street lending program, it has changed the terms to allow for greater participation.
The central bank said Monday that it is lowering the initially stated minimum loan and raising the maximum that can be borrowed, plus is expanding the loan terms to five years. The program is part of the Fed’s efforts to get money to small- and medium-sized businesses hurt during the coronavirus-induced recession.
Under the new guidelines, the minimum loan now will be $250,000, half the amount under previous versions of the plan. The maximum will now vary by facility but could be up to $300 million from the previous $200 million.
· German exports collapse in April as coronavirus hits demand
German exports slumped in April as the coronavirus crisis slashed demand for goods from Europe’s biggest economy, the Federal Statistics Office said on Tuesday.
Seasonally adjusted exports dived 24% on the month while imports slid by 16.5%. The trade surplus shrank to 3.2 billion euros, the Statistics Office said.
· Trump's troop cut in Germany blindsided senior U.S. officials, sources say
President Donald Trump’s decision to cut U.S. troop levels in Germany blindsided a number of senior national security officials, according to five sources familiar with the matter, and the Pentagon had yet to receive a formal order to carry it out, Reuters has learned.
Trump decided to remove 9,500 troops from Germany, one of America’s strongest allies, reducing the number there to 25,000 from 34,500, a senior U.S. official said on Friday.
That official said it was the result of months of work by the U.S. military leadership and had nothing to do with tensions between Trump and German Chancellor Angela Merkel, who thwarted his plan to host an in-person Group of Seven (G7) summit this month.
· Oil prices climb as easing of lockdowns fuels hopes for recovery in fuel demand
Oil prices rose on Tuesday, boosted by hopes for a swift recovery in fuel demand as coronavirus lockdown measures are eased across the globe, but gains were capped by the spectre of persistent oversupply in the market.
Brent crude futures rose 0.5%, or 22 cents, by 0647 GMT to $41.02 a barrel. The benchmark contract had fallen $1.50 on Monday, snapping a seven-day streak of gains.
U.S. West Texas Intermediate (WTI) crude futures rose 0.8%, or 31 cents, to $38.50 a barrel, after dropping by $1.36 on Monday.
“With Brent holding very nicely above $40, there’s talk among traders that WTI will test that level soon,” said Michael McCarthy, chief market strategist at CMC Markets.
Goldman Sachs raised its 2020 oil price forecasts, with Brent now seen at $40.40 a barrel and WTI at $36 a barrel, but it warned that prices would likely pull back in the coming weeks due to demand uncertainty and an inventory overhang.
· Goldman Sachs expects oil rally to run out of steam soon
Oil prices are likely to pull back in the coming weeks due to the uncertain path of future demand and a “daunting” inventory overhang, Goldman Sachs said in a note dated Monday.
Goldman expects Brent prices to reach $35 per barrel in the short term, compared with around $43 hit on Monday.
Oil prices bounced to three-month highs on Monday after the OPEC+ nations agreed to extend record output cuts of 9.7 million barrels per day into July amid signs of a quicker-than-expected economic recovery.
Brent crude futures were trading around $41 a barrel on Tuesday. The benchmark contract has vaulted more than 150% since hitting $15.98 in April, its weakest since June 1999.
Goldman raised its 2020 Brent price forecast to $40.40 a barrel from $35.60 earlier, citing positive sentiment around the reopening of economies. WTI prices are now forecast to reach $36 this year, compared with a previous estimate of $33.10.
· The Saudi-Russia oil price war was a ‘very big mistake,’ Qatar energy minister says
Qatar’s Minister of State for Energy Affairs shared his thoughts on some of the major oil producers’ market moves in recent months, shedding disapproval on the March decision by Saudi Arabia and Russia to launch into a price war, which sent oil prices into free fall.
“I think it was a very big mistake,” Saad al-Kaabi told CNBC’s Hadley Gamble from Doha. Al-Kaabi is also CEO of Qatar Petroleum. “You know, flooding the market is what caused us to go to a very low level. And then the pandemic basically took it almost to a very dangerous area where people could not afford to produce anymore. And we saw, you know, negative pricing in (U.S. oil benchmark) WTI.”
The markets were already being devastated by the crushing drop in demand due to global coronavirus lockdowns. The call to open the taps on oil production pulled the floor from under the market as Saudi Arabia slashed its selling prices and increased production after Russia refused to join its plan to further cut output and boost prices in early March.
The hit to producing countries revenue was harsh enough to bring OPEC and its non-OPEC allies — known as OPEC+ — back to the negotiating table. In April, they agreed to the largest production cuts in history at 9.7 million barrels per day. Those cuts have now been extended through July, after the price of international benchmark Brent rose almost 40% in the month of May. Brent crude was still down more than 46% year-to-date as of the end of May.
· North Korea says it will sever hotlines with South Korea: KCNA
North Korea said on Tuesday it will sever hotlines with South Korea as the first step toward shutting down all contact with Seoul, state news agency KCNA reported.
For several days, North Korea has lashed out at South Korea, threatening to close an inter-Korean liaison office and other projects if the South does not stop defectors from sending leaflets and other material into the North.
Reference: CNBC, Reuters
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