· The dollar softened against a basket of currencies on Monday on bets the U.S. Federal Reserve may lower interest rates more than once this year, while tensions between Iran and the United States provided safe-haven support for the yen.
Bitcoin extended its torrid weekend run, when it broke above $11,000 for the first time since March 2018.
The world’s biggest and best-known cryptocurrency has risen nearly 200% this year as Facebook’s plan to introduce its Libra digital coin stoked optimism about widening usage of virtual currencies.
Investors awaited whether U.S. President Donald Trump and China President Xi Jinping would at least call a truce in their trade war at the G20 summit in Japan later this week.
· Markets believe that if Washington and Beijing fail to dial back their heated rhetoric on trade, then the Fed will be forced to cut interest rates to prevent a wider economic slowdown resulting from higher U.S. tariffs on imports.
Both China and the United States should make compromises in trade talks, Chinese Vice Commerce Minister Wang Shouwen said on Monday.
· Interest rates futures implied traders priced in a 100% chance the Fed would cut rates at the end of July, while they are betting on a high probability it might lower rates two more times after that, according to CME Group’s FedWatch program.
Expectations of falling U.S. rates have weakened the greenback. An index that tracks the dollar against a group of six currencies fell 1.57% last week, its biggest weekly loss in four months. At 2:57 p.m. (1857 GMT), the dollar index dipped 0.24% at 95.985.
The yen was steady at 107.31 per dollar after reaching 107.045 on Friday as nervous traders piled into the safe-haven currency.
· U.S. government debt yields fell on Monday as investors prepared for a key trade meeting between President Donald Trump and China leader Xi Jinping.
At around 3:58 p.m. ET, the yield on the benchmark 10-year Treasury note, which moves inversely to price, was lower at around 2.021%, while the yield on the 30-year Treasury bond was also lower at around 2.551%.
The two are expected to discuss the ongoing trade war between the U.S. and China at the Group of 20 meeting in Osaka, Japan.
Wall Street is hopeful U.S. and Chinese negotiators will return to constructive dialogue and move closer to a deal to end the protracted trade war between the globe’s two largest economies. Washington and Beijing have implemented and threatened tariffs on billions of dollars worth of their goods over the past year. Last month, the two countries hiked tariffs targeting some goods.
Market players are following geopolitics, in particular escalating tensions between Iran and the U.S. Over the weekend, President Trump announced that the U.S. will impose “major” additional sanctions on Iran on Monday but Iran dismissed the threat as “just propaganda.”
· President Donald Trump signed an executive order Monday imposing “hard-hitting” new sanctions on Iran in response to the downing of an unmanned U.S. drone last week.
“We will continue to increase pressure on Tehran until the regime abandons its dangerous activities,” including its nuclear ambitions, Trump told reporters in the Oval Office.
“We do not seek conflict with Iran or any other country,” Trump added. “I can only tell you we cannot ever let Iran have a nuclear weapon.”
· Oil prices were mixed on Monday as market concerns about the possibility of a conflict between the United States and Iran eased, while worries about declining crude demand resurfaced.
Benchmark Brent crude futures settled at $64.86 a barrel, losing 34 cents, or 0.5%. U.S. crude futures settled at $57.90 a barrel, rising 47 cents, or 0.8%.
· Oil traders are under-prepared for another flare-up in U.S.-Iran tensions, energy analysts have told CNBC, as President Donald Trump’s administration prepares to impose “major ” new sanctions on the Islamic Republic.
Nonetheless, David Hewitt, an oil and gas analyst at Macquarie, told CNBC’s “Street Signs Europe” on Monday that oil traders were still underestimating the impact of another flare-up between Washington and Tehran.
“They will strike back one way or the other; I think chances of tensions becoming bigger is very, very high in the near future,” Fereidun Fesharaki, who was a former energy advisor to the government in Tehran in the 1970s, told CNBC’s “Squawk Box” on Monday.
Chances of a conflict are at least 50% right now, Fesharaki said. It may not be a “full war,” he pointed out, “but conflict which would disrupt (energy) supplies.”
“Some have talked about the potential for a return to $100 oil in the event of another flare up of U.S.-Iran tensions but I suspect these are greatly exaggerated.”
· A decisive win for Turkey’s main opposition party in a re-run of a mayoral election in Istanbul this weekend has dealt a big political blow to President Recep Tayyip Erdogan and prompted hopes for economic and political change.
Ekrem Imamoglu, the candidate for the main opposition Republican People’s Party (CHP), won 54% of the vote, Turkey’s Anadolu news agency reported, while Binali Yildirim, the candidate for Erdogan’s ruling Justice and Development Party (AKP), received around 45% of the vote.
Investors have reacted positively to the election result with the Turkish lira strengthening to 5.7333 against the dollar Monday, up from a close of 5.8140 Friday. Turkey’s BIST 100 stock index was trading higher around 2% Monday with Turkish banks the top gainers on the index.
Reference: Reuters, CNBC
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