Dollar languishes near three-and-a-half-month lows ahead of Yellen testimony

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Thomson ReutersAn employee of KEB counts U.S. one hundred dollar notes at the bank's headquarters in Seoul

By Hideyuki Sano and Masayuki Kitano

TOKYO/SINGAPORE (Reuters) - The dollar nursed losses around three-and-a-half-month lows on Wednesday, pressured by fears of a global economic slowdown following recent falls in oil prices and growing concerns about the health of European banks.

Many traders suspect those troubles will prevent the U.S. Federal Reserve from raising interest rates in the near future and look to Fed Chair Janet Yellen's congressional testimony later in the day for clues on the outlook for policy.

The dollar index <.dxn> eased 0.1 percent to 95.939, not far from a 3-1/2-month low of 95.663 set on Tuesday.

The low represented a 4.8 percent decline from its 12-1/2-year peak touched in early December when the consensus was for the Fed to keep raising rates this year, stoking a global capital rush of funds to higher-yielding dollar assets.

"Concerns about European banks are contributing to the risk off mood in markets. In addition, U.S. data this month has been weak and Fed officials appear to be toning down on rate hikes," said Shinichiro Kadota, chief FX strategist at Barclays in Japan.

The dollar's fall has been most notable against the yen, which had been depressed at low levels over a long period because of the Bank of Japan's aggressive monetary easing since 2013.

The dollar fell 0.7 percent to 114.37 yen , not far from its 15-month low of 114.205 yen hit on Tuesday.

A fall in Japan's benchmark Nikkei share average <.n225> to its lowest levels since October 2014 helped spur demand for the safe-haven yen, analysts said.

Such weakness in Japanese equities could dampen Japanese investors' risk appetite and weigh on the dollar versus the yen in coming months, said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.

"The story could start to shift toward a worsening in Japan's economy that in turn dampens yen-selling by Japanese investors," Murata said.

The options market indicates that investors want protection against further falls in the dollar against the yen.

Risk reversal spreads, which measure the price gap between the yen calls and yen puts, are at their widest in favor of yen calls since 2010 , suggesting huge demand for yen calls, or right to buy the yen.

At a time of economic stress, countries or regions running current account surpluses, such as Japan, the euro zone and Switzerland, are seen as safer compared to those that have deficits and rely on foreign capital to finance the gap.

The United States, UK and Australia fall into the latter category.

That explains why the euro is supported despite surprisingly weak German industrial output data on Tuesday and the banking woes in the continent.

The euro held steady at $1.1295 , having hit a 3-1/2 month high of $1.13385 on Tuesday.

"At the moment, the euro has a very high inverse correlation with risk assets," said Kadota at Barclays.

Global share prices have come under renewed pressure this week, with MSCI's broadest gauge of world stocks <.miwd00000pus> having edged back to near a 2-1/2 year low hit last month.

The Swiss franc stood firm at 0.9723 franc to the dollar , near a 3-1/2-month high of 0.9695 set on Tuesday.

(Editing by Shri Navaratnam and Kim Coghill)

Read the original article on Reuters. Copyright 2016. Follow Reuters on Twitter.

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Here's what to expect when Janet Yellen faces Congress this week

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REUTERS/Kevin Lamarque

Federal Reserve chair Janet Yellen will spend much of Wednesday and Thursday on Capitol Hill, as part of her semi-annual testimony.

At 8:30 a.m. ET on Wednesday, the Fed will release Yellen's prepared remarks, which she'll read to the House Committee on Financial Services before answering questions at 10:00 am ET. 

On Thursday, Yellen will appear before the Senate Committee on Banking, Housing, and Urban Affairs and deliver the same remarks before another Q&A.

This is the highlight of a relatively quiet week for economic data and will give us Yellen's updated thinking on the economy and the rationale behind the FOMC's decision to raise interest rates in December.

Yellen is likely to reiterate the theme of modest US economic growth and maintain a cautious outlook for the US economy.

The labor market is likely to give Yellen one more reason to still be reasonably hawkish and indicate the more rate hikes could be coming.

The unemployment rate is at 4.9%, an eight-year low and within the Fed's definition of full employment. And on Tuesday morning, the JOLTS report — one of Yellen's preferred gauges — showed that at the end of last year employees quit their jobs at the highest rate since 2008, an indication of confidence among American workers. 

The number of job openings was the second-highest on record. 

But Yellen will also likely be asked to acknowledge the risks the US economy faces from slowdowns abroad and that financial conditions have tightened considerably since the Fed's rate hike in December.

Wider credit spreads and falling stock prices have helped to make financial conditions "considerably tighter" than they were in December, as New York Fed president William Dudley said last week in a speech. 

And in addressing the volatility, RBC Capital Markets' Tom Porcelli notes that Yellen would not want to get trapped into temporarily satisfying market participants — who have short time horizons — by making policy decisions that create even more volatility later.

We know from the December meeting that the Fed expects to raise rates four times this year, or once at every meeting followed by a press release in 2016. 

BMO Capital's Aaron Kohli wrote to clients that it's likely Yellen restates her commitment to leave the era of zero interest rates behind and continue hiking gradually but won't make any assurances about the next decision in March. 

The Q&A session will be just as revealing, and even "feisty," according to Jefferies' Ward McCarthy.  "Yellen will strap on her body armor because she is likely to be dodging bullets from both sides of the aisle," he wrote to clients.

McCarthy said that while there are members of Congress who outright disagree with Yellen's approach to monetary policy, even those in support of her would question whether it was too soon to raise rates.

"She will be in the awkward position of explaining complicated and sophisticated relationships to an audience that is inclined to view the Fed as the natural scapegoat for all ailments of the Western World and suspicious of and disinclined to accept complicated and sophisticated explanations," McCarthy wrote. 

SEE ALSO: Americans are quitting their jobs like crazy

Scientists just discovered a disturbing new defect associated with the untreatable Zika virus

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Ueslei Marcelino/ReutersRosana Vieira Alves fixes the hair of her 4-month-old daughter, Luana Vieira, who was born with microcephaly.

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Scientists have found a disturbing new component to the birth defects associated with the Zika virus.

In one of the first studiespublished related to the recent Zika outbreak, researchers in Brazil documented the eye abnormalities in babies with a traditionally rare condition called microcephaly.

Babies with the condition are born with abnormally small brains, which can be connected with other complications. It's not unusual for vision problems to beassociated with microcephaly.

They found that in one-third of babies with microcephaly — after a presumed Zika infection before they were born — there was an additional eye abnormality that could threaten their vision.

Ten of the 29 babies observed had irregularities in one eye or both eyes, and about 80% of the mothers reported Zika-like symptoms during their pregnancy.

This led the researchers to conclude that Zika is linked to this eye problem, including damage to the retina, the layer at the back of the eye that converts images into signals that are sent to the brain.

"We're very concerned about this," Lee Jampol, a professor of ophthalmology at Northwestern, told USA Today. "There hasn't been enough testing yet to know what these babies' vision is going to be."

In an accompanying editorial, Jampol and fellow Northwestern ophthalmologist Debra Goldstein advised that babies born with microcephaly in areas with Zika should have their eyes examined, though that recommendation didn't extend to babies in areas with Zika that don't have microcephaly. The study and editorial were published on Tuesday in JAMA Ophthalmology.

For the most part, only about 1 in 5 people with Zika ever shows symptoms, which most commonly include fever, rash, joint pain, and red eyes, though there have been cases of a temporary neurological disorder called Guillain-Barre Syndrome associated with Zika.

It's Zika's connection to microcephaly that's particularly concerning. It has raised concerns about pregnant women contracting the virus. There are currently no vaccines or treatments, though vaccines are in early development.

The best way to prevent infection is to avoid being bitten by the mosquitoes that transmit the disease, by either avoiding travel to areas where the virus is being transmitted or wearing long clothes and using mosquito repellent.

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The New Power Added to U.S. Grids in 2015 Was Mostly Renewable

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• Claire Groden

 FEBRUARY 4, 2016, 3:14 PM EST

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For the second year in a row.

2015 was a big year for clean energy.

Renewable energy accounted for the majority of new power added to the U.S. power grids last year—marking the second year in a row that clean energy surpassed fossil fuels, according to a new report from Bloomberg New Energy Finance and the Business Council for Sustainable Energy.

Renewable energy has enjoyed a boost from government incentives and declining systems costs.

Clean energy investments also rose 7.5% from the year before to $56 billion. Ten years earlier, in 2005, renewable investments barely amounted to more than $15 billion. More than half of last year’s amount went toward solar energy projects, while wind attracted $11.6 billion in investments.

Corporate procurement of clean energy contined to grow: It doubled from 2013 to 2014 and again from 2014 to 2015. Major corporate buyers included tech giants Google  GOOG -0.68% , Amazon  AMZN -1.24% , Facebook  FB -0.21% , and Apple AAPL -0.02% .

Coal, meanwhile, emerged as the main loser of the year. As a record number of coal plants closed, domestic coal production continued its steady decline since 2008, according to theEnergy Information Administration.

The head of trading at Morgan Stanley just confirmed Wall Street's worst fear

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Morgan StanleyTed Pick, global head of sales and trading at Morgan Stanley.

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Ted Pick, the global head of sales and trading at Morgan Stanley, just confirmed Wall Street's worst fear: It has been a horrible first quarter in trading.

Pick was speaking at the Credit Suisse financial-services forum.

"The year started out OK. It started out OK for everyone," he said.

More recently, however, markets have gotten choppy. He was asked what trading revenues looked like halfway through the first quarter.

"The question is going to be, with the animal spirits having sort of disappeared here and the classic risk taking mode, whether we're going to continue to see this gapping around, which I think will look more like recent sequential quarters than it would like the healthy first quarter we saw last year," he said.

That comment is critical. The first quarter is typically the most important period of the year for trading desks, as asset managers move into new positions.

If that isn't happening, and the first quarter looks just like the third or fourth quarter, for example, then trading revenues are likely to come in down on the first quarter of last year.

The right kind of volume

Pick added that while equity and bond trading volumes are up, it isn't the right kind of volume.

"I think we'd all argue that some of this volume isn't terribly healthy," he said.

"It is not the classic beginning of the year reinvesting cycle," he added. "It is choppier, it is gappy, it is highly insured volume, and the question is how long are we going to see that for?"

His comments confirm fears that the recent volatility has dented trading revenues. Credit Suisse analysts led by Susan Roth Katzke highlighted the increased trading volumes in a note at the beginning of February, but said it was unclear as to whether that increase in volumes would lead to an increase in profits.

Pick started his interview at the Credit Suisse conference talking about markets more broadly, saying that this is "the finishing phase" of a climb down from well-established market highs.

Morgan Stanley

"We know what the three culprits for this violence are," he said. "One is China and its adolescence, two is the relentless decline of crude and its impact on the credit complex and sovereigns. And then three is the Fed, and fear of Fed self doubt."

He said the long-short hedge-fund community had struggled, and were taking risk off the table. As they did so, they were removing levered long positions, but maintaining their levered short positions, turning negative on the market in the process.

"We're certainly in the stages of what feels like some capitulation," Pick said. "Asset managers were selling futures against the market, and that worked until single names started to not work."

Sovereign wealth funds have been quiet since the third question, he said, adding that if the crude oil price hangs around the $30 mark for a while, they might start to sell their assets too.

"The markets feel oversold as a technical matter, but it is hard to have conviction, and for that reason managers are playing close to shore," he said.

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Indonesia to open up several economic sectors to foreign investment

FEB 10, 20163:00 PM

[JAKARTA] Indonesia will ease foreign investment rules in several sectors of the economy, including the e-commerce, healthcare, and movie industries, President Joko Widodo said on Wednesday.

The move is aimed at attracting more foreign funds into Southeast Asia's economy, which has been growing at its slowest pace in six years because of falling commodity prices and cooling growth in major trading partner China. "We are seriously considering deregulation across the board, but focusing on e-commerce, healthcare, and creative industry," Mr Widodo said in an interview with Reuters at the presidential palace in central Jakarta.

"Our commitment is to increasing competition," he said.

Trade Minister Thomas Lembong told Reuters separately the retail sector is also among those to be opened up to foreign investment.

The last revision to the negative list - which names sectors to which foreign investment restrictions apply - was done in 2014 and was seen by many as less investor-friendly.

Mr Widodo's administration has rolled out several economic stimulus packages in recent months aimed at cutting red tape, boosting spending and improving investor sentiment.

REUTERS

    
 

Japan: Stocks plunge for second day on yen strength, margin calls

PHOTO: AFP

FEB 10, 20162:52 PM

[TOKYO] Japanese stocks plunged for a second day as investors rushed to the safety of the yen while concerns that margin calls were triggering automatic selling of shares also weighed on sentiment.

The Topix index sank 3 per cent to 1,264.96 at the close in Tokyo, capping the biggest two-day loss since August and lowest close since October 2014. It pared a loss of as much as 4.4 per cent in late trading.

Volume on the measure was 55 per cent higher than the 30-day average. The Nikkei 225 stock average dropped 2.3 per cent to 15,713.39, triggering margin calls among retail traders.

The yen traded at 114.66 per dollar, near the strongest since November 2014.

Markets in Japan are closed Thursday for a holiday.

"Japanese stocks are suffering from a triple punch and it's difficult to bounce back," Tomoichiro Kubota, a senior analyst at Matsui Securities Co in Tokyo, said by phone.

"We have worries over financial institutions in Europe, problems in the bond market, and concerns aren't alleviated at all. There's still a sense of wariness toward commodity-related corporate earnings in the US, so that's a negative, plus the yen is being favored as a place of refuge."

With investors reeling from the yen's surge and the Topix's 8.4 per cent two-day plunge, the focus is on Federal Reserve chair Janet Yellen as she testifies before the US Congress on Wednesday.

Markets will be parsing her commentary for clues on further US rate increases amid concerns over the creditworthiness of European banks, oil's decline and the strength of the global economy.

E-mini futures on the Standard & Poor's 500 Index slipped 0.4 per cent after the underlying equity gauge closed 0.1 per cent lower on Tuesday, paring earlier losses as speculation that Deutsche Bank AG is considering buying back billions of its bonds fueled an afternoon rebound in equities.

Wednesday's plunge sent both the Topix and Nikkei 225 below levels reached in January, which to Kubota indicates it is "highly likely we'll keep falling."

Margin Calls

Investors said this week's declines to below key levels have triggered margin calls among retail traders, who are being automatically forced to close souring bets. That's adding to the selling pressure, according to Miki Securities Co.

"There's been a lot of margin calls after the rout. With yesterday's falls the amount of margin calls have shot up today," said Jun Kitazawa, deputy manager of investment information at Miki.

"Today's falls in Japanese stocks have been caused by selling related to Nikkei leveraged ETFs."

Japanese banks were among the biggest losers for a second day, with Mitsubishi UFJ Financial Group Inc dropping 7.1 per cent following yesterday's 8.7 per cent plunge. The Topix Banks Index has lost almost US$93 billion in value since Jan 28, the day before Bank of Japan's introduced negative interest rates, squeezing profitability at lenders.

Information and communication shares dropped as KDDI Corp plunged 5 per cent after reporting third-quarter earnings and saying its biggest shareholder Kyocera Corp would sell a part of its stake back to the mobile carrier.

Credit Suisse Group AG called the move a surprise, but said Kyocera is unlikely to sell more. Kyocera, which is building the world's largest floating solar-power plant, added 2.1 per cent.

SoftBank Group Corp lost 3.5 per cent as the cost to insure the carrier's debt against default surged to the highest since June 2010. Tokyo Electric Power Co sank 7.1 per cent, the most since August. 

Bandai Namco Holdings Inc plummeted 12 per cent after lowering its operating-profit outlook as struggling sales of arcade games caused it to write off some assets.

Shimadzu Corp was one of just 131 companies among the Topix's 1,934 members to rise. Shares jumped 5.6 per cent after nine-month profit soared 51 per cent at the maker of analytical and measuring tools.

BLOOMBERG

    
 

Asia: Markets extend rout as volatility returns

PHOTO: AFP

FEB 10, 201611:08 AM

[HONG KONG] Asian stock markets took another battering Wednesday, with Tokyo leading another day of sharp losses as investors grow increasingly worried about the world economy and the possibility of a global recession.

As more bourses reopened after the Lunar New Year break, they immediately plunged into the red, playing catch-up with a rout that has seen billions wiped off valuations from Sydney to Frankfurt to New York.

Energy firms were once again in the firing line after oil prices sank below US$28 a barrel again, while financial plays are also coming under increasing pressure as investors fret about their bottom lines in the face of the economic slowdown.

The sell-off is the latest in the past six weeks that has seen severe volatility around the world fuelled by China's growth slowdown and a crash in crude prices. The Chicago Board Options Exchange Volatility Index - which measures market turbulence, is sitting around five-month highs and has jumped 20 per cent since Friday.

"Contributing to the drop in oil and certainly having a large impact on the drop in equities is this growing concern about the sustainability of the recovery, the state of economic growth in China and increasingly the state of growth in the US," Russ Koesterich, global chief investment strategist for New York-based BlackRock, told Bloomberg TV.

"People are getting worried about the global recession, worried about growth, which is affecting not only oil and stocks but other risky assets as well." Japan's Nikkei index lost 2.4 per cent by the break, extending the 5.4 per cent collapse Tuesday, as the yen climbed against the dollar to levels not seen since late 2014.

Sydney shed 2.2 per cent and Singapore, returning from a two-day holiday, sank 2.1 per cent while Manila lost more than one per cent.

Among energy plays Sydney-listed Woodside shed 3.5 per cent and miner BHP Billiton was almost four per cent off. In Tokyo JX Holdings was 2.4 per cent off and Inpex eased 1.5 per cent.

Their losses came as crude continues to be buffeted by the global supply glut, overproduction and weak demand that has sent it crashing more than 70 per cent from mid-2014 highs.

On Tuesday US benchmark West Texas Intermediate slumped almost six per cent and Brent lost 7.7 per cent after the International Energy Agency warned there was unlikely to be any easing of fundamentals.

Investors are now awaiting the release later Wednesday of the weekly US stockpiles report looking for an idea about demand in the world's top economy and consumer of oil.

Asia's banks were also taking a beating following big losses in their European counterparts as economic fears continue to bite.

Japanese giant Sumitomo Mitsui lost more than two per cent and Mitsubishi UFJ lost 3.5 per cent. In Singapore UOB lost 2.3 per cent while Sydney-listed ANZ was 3.5 per cent off and Westpac gave up 2.3 per cent.

Investors are keeping a close eye on Federal Reserve chief Janet Yellen's congressional testimony later in the day to see what signals she gives on interest rates. There are hopes she will sound a cautious tone after the turmoil that has ravaged markets this year.

AFP