· Riskier currencies gain on vaccine hopes; dollar hits one-month low
Risk sentiment was upbeat in currency markets on Wednesday, as signs of progress towards a COVID-19 vaccine and a Wall Street equities rebound on Tuesday pushed commodity currencies higher and the dollar to a one-month low.
Moderna Inc’s experimental vaccine for COVID-19 provoked immune responses in all 45 healthy volunteers in an ongoing early-stage study in the United States.
Global equities gained following on from a Wall Street rebound on Tuesday, with the optimism continuing through the Asian session, although Chinese shares sold off somewhat.
European equities were set to continue the bullish trend.
Hopes that European Union leaders will reach an agreement about the proposed coronavirus recovery fund at the EU summit on Friday and Saturday saw the euro rise to a four-month high of $1.14230 around 0010 GMT.
German Chancellor Angela Merkel said in a news conference with Spanish Prime Minister Pedro Sanchez on Tuesday that Germany would push for a compromise.
Italian Prime Minister Giuseppe Conte warned during a news conference with Merkel on Monday that the EU economic stimulus for member states should not carry too much conditionality.
Commerzbank FX analyst Antje Praefcke said that the fact that EU leaders have been meeting to discuss important issues before the summit suggests that it is possible that a compromise will be reached.
The euro extended gains and hit a four-month high of $1.1435 at 0744 GMT.
U.S. President Donald Trump ended Hong Kong’s preferential status as a trading partner. China responded by saying it will impose retaliatory sanctions on the United States.
The dollar index fell in the early hours of the morning, hitting a one-month low of 96.032 at 0735 GMT.
Markets overlooked a downgrade in Japan GDP estimates at a policy meeting with the yen little changed, at $107.01.
· In surprise move, Trump administration reverses course on barring many foreign students
In a stunning reversal of policy, the Trump administration on Tuesday abandoned a plan that would have forced out tens of thousands of foreign students following widespread condemnation of the move and pressure from colleges and major businesses.
U.S. officials announced last week that international students at schools that had moved to online-only classes due to the coronavirus pandemic would have to leave the country if they were unable to transfer to a college with at least some in-person instruction.
The government said it would drop the plan amid a legal challenge brought by universities. But a senior U.S. Department of Homeland Security (DHS) official said the administration still intended to issue a regulation in the coming weeks addressing whether foreign students can remain in the United States if their classes move online.
· Trump says he is 'not interested' in trade talks with China
U.S. President Donald Trump on Tuesday shut the door on “Phase ” trade negotiations with China, saying he does not want to talk to Beijing about trade because of the coronavirus pandemic.2
“I’m not interested right now in talking to China,” Trump replied when asked in an interview with CBS News whether Phase trade talks were dead.2
“We made a great trade deal,” Trump said, of the Phase agreement signed in January. “But as soon as the deal was done, the ink wasn’t even dry, and they hit us with the plague,” he said, referring to the novel coronavirus, which first emerged from the Chinese city of Wuhan.1
· China vows retaliation after Trump ends preferential status for Hong Kong
President Donald Trump on Tuesday ordered an end to Hong Kong’s special status under U.S. law to punish China for what he called “oppressive actions” against the former British colony, prompting Beijing to warn of retaliatory sanctions.
Citing China’s decision to enact a new national security law for Hong Kong, Trump signed an executive order that he said would end the preferential economic treatment for the city.
· BOJ stands pat on policy, sticks to cautious recovery view
The Bank of Japan kept monetary policy steady on Wednesday and maintained its view that the economy would gradually emerge from the coronavirus pandemic’s devastating blow, signalling a pause after delivering stimulus twice so far this year.
But it warned that uncertainty over the outlook was “extremely high” due to various risks, including the possibility of a huge second wave of infections and potential disruptions to the banking system.
“Japan’s economy is expected to gradually improve from the latter half of this year. But the pace of recovery will be moderate as the effect of the global coronavirus pandemic will remain,” the BOJ said in a quarterly outlook report.
As widely expected, the BOJ maintained its - short-term interest rate target and a pledge to cap year government bond yields around zero.0.1%10-
It also made no changes to its asset-buying and lending programmes for easing corporate funding strains.
· Japan GDP to shrink in fiscal , BOJ says4.7% 2020
The Bank of Japan on Wednesday forecast the nation's economy to contract 4.7% in fiscal 2020 despite recent signs of gradual recovery.
The estimate, released in a quarterly outlook report, is the median of forecasts from all BOJ policy board members, which ranged from minus 4.5% to minus 5.7%. The range represented a worsening from the April estimate of a contraction of between 3.0% and 5.0%.
"The downshift reflects slower-than-expected recovery both in Japan and overseas," said Hideo Kumano, chief economist at Dai-ichi Life Research Institute.
The contraction could be followed by an expansion of 3.3% in fiscal 2021 and 1.5% in 2022. The Japanese fiscal year ends in March.
The forecast range for growth is between 3.0% and 4.0% for 2021, and 1.3% and 1.6% for 2022.
Core consumer inflation is projected to fall 0.5% in fiscal year 2020 before rebounding 0.3% in fiscal 2021 and 0.7% in fiscal 2022.
The outlook report was released after a two-day policy meeting in which the central bank decided to leave the monetary policy unchanged for a second straight month, opting to monitor the pace of the nascent recovery.
· Oil gains after big U.S. drawdown; eyes on OPEC committee meeting
Oil prices rose on Wednesday following a sharp drop in U.S. crude inventories, with the market waiting for next steps from a meeting later in the day on the future level of output cuts by OPEC and its allies.
Brent crude <LCOc1> futures were up 22 cents, or 0.5%, at $43.12 a barrel as of 0640 GMT, and U.S. West Texas Intermediate (WTI) crude <CLc1> futures rose 23 cents, or 0.6%, to $40.52 a barrel.
Reflecting a recovery in fuel demand despite the coronavirus pandemic, U.S. crude inventories fell by 8.3 million barrels in the week to July 10, beating analysts' expectations for a decline of 2.1 million barrels, according to data from industry group the American Petroleum Institute. [API/S]
Official numbers from the U.S. Department of Energy's Energy Information Administration (EIA) are due on Wednesday.
Reference: CNBC, Reuters, The Asia.Nikkei
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