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Dollar rises as Trump policies seen boosting U.S. inflation

Posted in Articles by dionrabouin on November 21, 2016

South Korean won, Chinese yuan and Japanese yen notes are seen on U.S. 100 dollar notes in this file photo illustration shot December 15, 2015. REUTERS/Kim Hong-Ji//Illustration/File PhotoThe dollar climbed to a 3-1/2-month high against the yen on Thursday as markets weighed how President-elect Donald Trump’s policies could affect economic growth.

The greenback rose more than 1 percent to 106.94 yen for the first time since late July JPY=. The dollar .DXY also rose 0.3 percent against a basket of major world currencies, touching its highest in more than two weeks to hover just below levels last seen in early February.

“It’s a continuation of the post-election response,” said Ian Gordon, FX strategist at Bank of America Merrill Lynch. “For us, the clean sweep of both the White House and the Congress by the Republicans is a clear signal that we are going to get a pretty significant fiscal stimulus in 2017 and that is going to be bullish for (interest) rates.”

Expectations that Trump’s policies would boost spending and inflation helped U.S. long-dated Treasury yields rise to their highest in more than 10 months. Yields on benchmark 10-year notes and 30-year bonds had their largest one-day rise in years on Wednesday and added to gains on Thursday after a weak 30-year bond auction. [US/]

Higher interest rates for U.S. Treasuries raise the value of the dollar by making dollar-denominated assets more attractive to investors.

The Chinese yuan CNH= weakened past 6.80 per dollar in the offshore market on Thursday for the first time in more than six years on fears that Trump will act on the protectionist rhetoric that ran through his campaign, particularly regarding trade with China.

The Mexican peso MXN=, also weakened by worries over Trump’s campaign proposals on trade, fell to a low of 20.64 to the dollar, nearing its all-time low mark touched on Wednesday.

Trump’s election also bolstered the British pound, which rose to a one-month high against the dollar, as the president-elect’s call for renegotiating trade deals set the United States and Britain in line to potentially join forces.

“You’ve got President-elect Trump in the U.S. along with Prime Minister (Theresa) May and they’re both talking about trade relationships,” said Douglas Borthwick, managing director at Chapdelaine Foreign Exchange. “So you’ve got two relatively novice politicians that I think will rekindle the special relationship between the U.S. and the U.K.”

The New Zealand dollar fell almost 1 percent NZD=D4 after the central bank cut rates on Wednesday and signalled the possible end to easing.

The euro fell to $1.0865, its lowest against the greenback since Oct. 25 EUR=.

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Expected inflation pop from Trump win pushes dollar to best week in a year

Posted in Articles by dionrabouin on November 21, 2016

The dollar rose to its highest in nine months against a basket of major currencies on Friday and posted its best week in a year as investors packed on bets that the administration of President-elect Donald Trump would pump up U.S. inflation.

Investors expect Trump’s proposals to deport illegal immigrants, renegotiate free-trade deals and unleash large fiscal stimulus measures will boost U.S. inflation.

The dollar also extended gains against the Chinese yuan and Mexican peso to historic levels on expectations that emerging markets will suffer most if Trump turns his protectionist rhetoric into action.

“Everybody loves U.S. assets, so hence why the emerging markets currencies and equities and obviously their own bonds are all under pressure,” said Dean Popplewell, chief currency strategist at Oanda in Toronto.

“We continue to see the squeeze in emerging markets. Certainly people will want to move their capital, stateside at the moment, and with higher rates and reflation and inflation U.S. Treasuries will eventually be coveted,” he added.

China fixed the yuan another 0.2 percent lower at 6.8120 per dollar and less tightly controlled offshore rates reached as high as 6.85 yuan CNH=, pointing to expectations of more losses. It was the lowest for the yuan against the dollar in six years.

Currencies associated with the Trans Pacific Partnership were lower across the board amid news on Friday that Trump’s election had effectively made the trade deal with Asian and Latin American nations a nonstarter for the U.S. Congress.

The Mexican peso MXN=D4 sank 3 percent to a record low of 21.395 per dollar and the Canadian dollar fell to its lowest since February.

In South America, Peru’s sol fell to its lowest since March against the dollar with the Chilean peso falling more than 1 percent.

The New Zealand NZD= and Australian dollars AUD= both dipped by around 1 percent against the dollar.

In Asia, the Malaysian ringgit MYR= fell to its lowest since January and the Singapore dollar SGD=hitting its lowest since February.

The euro fell to its lowest against the dollar since March, touching $1.0836 EUR=.

The dollar erased most of its losses on the day against the Japanese yen JPY= to trade little changed from late Thursday’s levels. It gained 3.5 percent versus the yen for the week.

The dollar index .DXY, which tracks the dollar against six rival world currencies, rose more than 2 percent this week, its best one-week gain since November 2015.

Brazil’s new president promises investors political stability

Posted in Articles by dionrabouin on November 21, 2016

Brazilian President Michel Temer on Wednesday promised political stability for foreign investors to put their money in a country weathering the impeachment of his predecessor and the worst recession in generations.

Speaking for the first time to investors in New York, Temer said he was confident he will have enough backing in Congress to pass unpopular fiscal reforms needed to plug a ballooning budget deficit and regain the confidence of markets in the once-booming economy.

Temer, formally sworn in three weeks ago, has managed to approve minor bills in Congress after months of political turmoil that led to the impeachment of his leftist predecessor Dilma Rousseff.

However, the 75-year-old constitutional scholar is already facing divisions within his widely diverse alliance in Congress with some lawmakers promising to water down the fiscal reforms.

The head of his economic team, Finance Minister Henrique Meirelles, told investors at the same event that he saw “extremely high chances” of approval for a key proposal to cap public expenditures.

Meirelles said a controversial reform to reduce generous pension benefits and set a minimum age of retirement will most likely be approved next year.

The proposed reforms and management changes in key state-run enterprises are shoring up confidence in Brazil that is on track for a gradual recovery after two years of recession, Meirelles said.

“Our actions aim to reduce the debt burden and increase productivity,” Meirelles said.

He added that the government could consider selling debt abroad again this year if market continues remain favorable.

Temer, who was in New York to address the U.N. General Assembly, on Tuesday assured world leaders at the gathering that the dismissal of Rousseff was fully constitutional. However, delegations of some leftist governments walked out of the session to express their objections about his legitimacy.

(Additional reporting and writing by Alonso Soto; Editing by Andrew Hay and Chizu Nomiyama)

Moody’s raises outlook for emerging markets in 2016, 2017

Posted in Articles by dionrabouin on November 21, 2016

Moody’s Investors Service revised its outlook on the world’s largest emerging market economies upward for 2016 and 2017, the ratings agency announced on Wednesday, pegging growth for G20 emerging markets at 4.4 percent this year and 5 percent for 2017.

Analysts at Moody’s said in a research note they expect growth in emerging markets to stabilize overall, but forecast increased growth for some countries and a turn lower for others.

Moody’s revised upwards its macro outlook for Brazil, Russia and China. Turkey and South Africa were seen growing less than previously expected.

“We’re seeing a certain amount of stabilization … capital flows seem to be back in a fairly strong way and across regions,” said Madhavi Bokil, Moody’s vice president and senior analyst and one of the authors of the report. “Relative to earlier in the year, financial market volatility has come down, and in the case of emerging markets in general we’re seeing some improvement.”

Moody’s expects Brazil to return to positive growth in 2017 after contracting 3.8 percent in 2015 and as much as 4 percent this year. Bokil attributed the improvement to an increase in business and investor confidence in Brazil since interim President Michel Temer took office earlier this year.

Russia, whose economy shrank 3.7 percent in 2015 and is expected to contract again this year, is seen growing up to 2 percent in 2017 thanks to stronger oil prices and industrial production, Moody’s report said.

China’s GDP outlook was raised to 6.6 percent in 2016 and 6.3 percent in 2017.

The upward revisions stem largely from economic stabilization in China as well as a recovery in commodity prices and the return of capital flows to emerging markets, the report said. The agency also noted the slower pace of the U.S. Federal Reserve’s interest rate tightening cycle in 2016.

“Financial markets that were quite volatile earlier in the year have settled and some of the expectations of Fed rate tightening have been pushed back,” Bokil said. “That’s allowed for some of the external pressures to come off.”

Moody’s did note in its report, however, that it expects the Fed to resume its tightening cycle at the end of the year.

The most immediate downside risk to the global economic outlook, Moody’s said, was the U.S. presidential election in November.

Colombia peace pact won’t boost economy in near term – investors

Posted in Articles, Features by dionrabouin on November 21, 2016

Colombia’s historic peace agreement with FARC rebels, to be unveiled on Wednesday after almost four years of negotiations, is not likely to give the country’s struggling economy an immediate boost, investors said, as sluggish commodities prices remain the most pressing issue.

Any benefit to the agreement, set to be unveiled late on Wednesday, is already reflected in the country’s markets and economy, investors said, after the government and rebels reached a ceasefire deal in June, setting the stage for a final pact.

The agreement will end more than 50 years of combat between the Revolutionary Armed Forces of Colombia (FARC) and the country’s government. Colombian voters still need to approve the agreement in a referendum expected to take place in the next couple of months.

“It’s good news in the abstract, but we have to see whether the referendum will be approved … and there are other issues in terms of fiscal reform that need to be addressed by the government,” said Jim Barrineau, co-head of emerging markets debt at Schroders Investment Management.

Wednesday’s accord would see FARC rebels reintegrated into civil society and given the opportunity to participate in politics.

“While there is little doubt that the deal is a net positive for the economy, the more optimistic estimates of its impact on the economy in the near term are unlikely to be borne out,” said Adam Collins, Latin America economist at Capital Economics in a research note.

“The security situation in Colombia has been steadily improving for more than a decade,” he said. “As such, most of the economic benefits of peace in terms of increased investment and tourism have already been felt.”

Colombia’s economy grew 4.4 percent in 2014 before slowing to 3.1 percent GDP growth in 2015, pressured by declining oil revenues.

How Colombia navigates its fiscal deficit and rising inflation is now more pressing than the long-term prospect of peace in the country, investors said.

Assuming the referendum on the deal passes, Colombian President Juan Manuel Santos is expected to seek approval for a package of tax increases aimed at offsetting falling oil revenues, Eurasia Group said in a research note.

Investors also cautioned that the agreement could be an economic hindrance as re-integrating rebels could add to Colombia’s budget deficit, which might hamper reform efforts and cause a downgrade in the country’s credit rating.

The Colombian peso fell 0.85 percent against the U.S. dollar on Wednesday. The country’s IGBC stock exchange, which has gained 18 percent so far this year, rose 0.7 percent.

The price of oil and gold, two of Colombia’s key exports, fell 1 percent and around 2 percent respectively on Wednesday.