· Sterling rallied on Tuesday on speculation that British Prime Minister Theresa May might be closer to securing approval for her Brexit deal after the European Commission agreed to some changes to it ahead of a vote in the British parliament.
The pound jumped as high as $1.3290 as May won legally binding Brexit assurances from the European Union, in a last ditch attempt to sway rebellious British lawmakers who have threatened to vote down her divorce deal.
“The market was sensitive to positive news rather than negative news as it had already priced in very bad scenarios,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.
Yamamoto said the likelihood remained low that British lawmakers would now agree to May’s deal in a vote expected later on Tuesday, just over two weeks before Britain’s scheduled March 29 departure from the European Union.
· After paring some of its earlier gains, sterling was last trading half a percent higher on the day at $1.3214. It was still up 2.1 percent from a low of $1.2945 at one stage on Monday.
Most other currencies stayed within familiar trading ranges before U.S. February inflation figures due at 1230 GMT.
· The dollar index, which measures the greenback against a basket of six rivals, was down 0.2 percent at 97.056 as some investors bought riskier assets.
However, the dollar tacked on 0.2 percent against the Japanese yen to 111.41 yen on the back of the improved appetite for risk.
The euro, which has struggled recently in line with a sputtering euro zone economy, found a measure of support on the improved sentiment and the Brexit news.
The single currency was last up 0.1 percent at $1.1259, extending recent gains to a third session
· Morgan Stanley predicted in a report on Monday that emerging markets could be set for a rally, and raised the target for the MSCI Emerging Markets Index by 8 percent for the end of 2019.
The investment bank said the index could rally due to a few factors, including its bullish outlook for Chinese stocks, upcoming stimulus for China, and the price of copper.
In addition, the effectiveness of China’s recent raft of stimulus measures has “proven to be better than what the market had expected,” the report said. Morgan Stanley pointed to the record-high numbers for bank loans issuance and total social financing — a broad measure of credit and liquidity in the economy — in January.
In fact, other emerging countries could gain from Beijing’s stimulus, the U.S. bank said.
“China’s stimulus should benefit the region (and world) through manufacturing trade, services demand (including tourism), as well as the outlook for resources,” the report said.
· The chief U.S. envoy for North Korea said on Monday that “diplomacy is still very much alive” with Pyongyang despite a failed summit last month, but cautioned that Washington was closely watching activity at a North Korean rocket site and did not know if it might be planning a new launch.
Stephen Biegun told a conference in Washington that although U.S. President Donald Trump and North Korean leader Kim Jong Un parted on good terms after their Feb. 27-28 summit in Hanoi, big gaps remained between the two sides and North Korea needed to show it was fully committed to giving up its nuclear weapons.
· Nothing is more important this week that the Brexit votes on Tuesday, Wednesday and possibly also Thursday. There's no exact time for the vote but it will be after the debates, which usually end evening time in the UK.
For the vote, there are only 2 outcomes - members of Parliament will choose to back the withdrawal agreement or reject it. If they accept the deal, Theresa May's strategy will be vindicated, the UK will leave the EU on March 29th and GBP will soar for no reason other than a certain outcome.
While we could see a quick 1-2% rally, it may be difficult for the gains to be sustained as investors turn their focus to the consequences of leaving the European Union with no permanent trade agreements ad the challenges the UK will have in negotiating from a isolated position.
What's most likely going to happen however is MPs will strike down the deal. There's already reports that May's Cabinet rejected the EU's latest backstop proposals. May has been unable to convince the EU the change the Irish backstop terms and unable to get enough MPs to accept the current deal.
· China’s central bank is studying the potential impact on banks’ loan pricing as it looks to the use of market-based interest rates to replace traditional benchmark interest rates to steer monetary policy, two sources told Reuters.
The comments come amid growing speculation over whether the People’s Bank of China (PBOC) will cut interest rates soon to support the slowing economy, and which of its many rates it may choose to lower first.
Other sources had told Reuters previously that the PBOC is not ready to cut benchmark rates just yet to spur flagging growth, but is likely to cut market-based rates, alongside further reductions in banks’ reserve requirement ratios (RRR).
· Chinese Vice Premier Liu He held a telephone call on Tuesday with U.S. Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer on key issues in their trade talks, state news agency Xinhua said.
The two sides set the next steps in “working arrangements”, Xinhua added, without giving details.
· Japanese Finance Minister Taro Aso said on Tuesday the central bank could give itself more flexibility in how it defines its 2 percent inflation target.
“I don’t think anyone in the general public is angry about the fact that inflation hasn’t reached 2 percent,” Aso told parliament, when asked his view on whether the Bank of Japan should persist in meeting the elusive price goal.
BOJ Deputy Governor Masayoshi Amamiya, however, told the same parliament committee that the central bank’s priority was to achieve its 2 percent inflation target.
The BOJ is set to maintain its massive stimulus program and warn of heightening overseas risks at next week’s rate review, sources have told Reuters.
· Oil prices rose on Tuesday, as OPEC’s de facto leader Saudi Arabia appeared to deepen the group’s supply cuts aimed at tightening markets, although gains were capped by the ongoing surge in U.S. supply and worries over the global economy.
U.S. West Texas Intermediate (WTI) crude oil futures CLc1 were at $57.08 per barrel at 0746 GMT, up 29 cents, or 0.5 percent, from their last settlement.
Brent crude futures LCOc1 were at $66.82 per barrel, up 24 cents, or 0.4 percent.
Bank of America Merrill Lynch said despite economic headwinds “we still see Brent prices averaging $70 per barrel this year and expect WTI to lag, averaging $59 per barrel in 2019.”
Reference: Reuters, CNBC
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