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Euro Advanced Despite ECB Warning on Volatility

Euro soar higher on optimism that the ECB would soon taper its QE program while the dollar dropped on weak economic data and as another major hurricane is set to hit the United States.

In the day’s most anticipated event, the European Central Bank refrained from changing policy although some analysts were expecting an announcement regarding the tapering of its asset purchase (QE) program. 

 

Despite the dovish outcome, euro/dollar rose sharply, rising north of 1.20 to 1.2058, just shy of the previous week’s 1.2069, which was its highest level since December of 2014. Trading in the pair was volatile today, moving between 1.1920 and 1.2050.

During the press conference that followed the announcement, ECB President Mario Draghi warned against excessive volatility in the euro as he showed some signs of displeasure from the recent surge in the single currency. 

 

The market pretty much ignored Draghi’s concerns and pushed the euro higher. Euro/pound also rallied to only briefly pierce the 0.92 mark but dropped back to around 0.9175. The euro also rose to trade above the 131 level against the yen, in a broad move higher for the currency.

Draghi also upgraded the ECB’s growth forecast to 2.2% this year, while also downgrading the inflation forecasts of the next two years to 1.2% and 1.5% for 2018 and 2019 respectively. While promising to keep the 60 billion euros a month pace of QE steady until the end of the year, Draghi said there would be an update on what would happen to QE next year when the ECB next meets in late October. 

This probably more than anything set off speculation that tapering would be announced during that meeting and gave the euro bulls an excuse to push the currency higher.

Dollar was easy target for the strong euro. In an indication of the distorting impact of Hurricane Harvey on US economic statistics, weekly initial jobless claims climbed to 298 thousand compared to 236 thousand the previous week. 

According to analysts, US economic statistics during the next 2-3 months will be influenced by the storm and with Hurricane Irma also closing in on Florida, the impact of hurricanes could be pronounced during the last four months of the year. The hurricanes are expected to have only a temporary impact on the US economy but they could also make the Fed’s task of raising rates again this year tougher. 

 

The dollar found little support from the previous day’s surprise deal between President Trump and Congressional Democrats for a 3-month extension of the Treasury’s debt ceiling combined with aid for hurricane victims. The dollar was under pressure against the yen as it dropped to around 108.60, while the pound climbed to briefly trade above the 1.31 level against the greenback. 

This was a fresh 1-month high for pound/dollar. The loonie, which made significant gains after yesterday’s Bank of Canada rate hike but then returned a portion of those gains, managed to slightly take out those lows of USD/CAD today as it traded at 1.2137 a 27 month low.

In commodities, gold rose to as high as $1347 an ounce a 1 year high as the precious metal took advantage of the dollar’s weakness and the uncertainty over North Korea’s possible new missile test over the weekend. Oil was a little lower at $48.86 a barrel.

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China Agreed to Loan Guinea $20 Billion in Exchanged of Aluminium Ore

China agreed to loan Guinea $20 billion over almost 20 years in exchange for concessions on bauxite, an ore of aluminium which the West African country has in abundance, the mines minister said.

The projects guaranteed by the loan included China Power Investment Corp’s (CPI) planned alumina refinery and Aluminium Corp of China’s (Chalco) bauxite mine and another bauxite project by China Henan International Cooperation Group, all of them in the northwestern town of Boffa.

 

According to the Mines Minister Abdoulaye Magassouba, that those are the three projects targeted as priorities for the first phase. The revenues of the projects will serve as reimbursement for the loans.

The minister said the money would be spent on badly needed infrastructure Guinea is one of the world’s least developed countries a roads for minerals formula that China often uses to gain access to Africa’s resources.

Projects earmarked included roads in the capital Guinea and highways upcountry, a project for extending the port of Conakry, an electric transmission line and the building of a university, Magassouba said.

Chalco said last month it plans to invest $500 million in the project in Boffa, about 200 kilometres from the capital Conakry, which was abandoned by BHP Billiton in 2013. The $6 billion CPI alumina project has been on the cards since at least 2012.

Guinea, Africa’s leading bauxite producer, holds some of the world’s richest bauxite and iron ore deposits, including the Simandou iron ore deposit, in its remote east, which is mired in legal disputes but has nevertheless attracted intense interest from China. 

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Asian Stocks Weighs Higher after Wall Street Equities Surged

Asian stocks weighs higher after Wall Street equities rose as investors weighed a U.S. deal that ensures the funding of its government through mid-December against persistent geopolitical tensions. The yen stayed lower after an overnight drop.

Most industry groups advanced, lifting the MSCI Asia Pacific Index by 0.4 percent. China trade figures are anticipated to show another month of solid export growth, while FX reserves probably continued to rise on stricter capital controls, robust growth and a stronger yuan.

Malaysia’s central bank will probably hold its benchmark rate at 3 percent at meeting. Australian retail sales were unchanged in July from June, while the nation’s trade surplus in July came in less than economists expected.

In stocks, the Topix index rose 0.6 percent as of 11:03 a.m. Tokyo time, while the Kospi index in South Korea was up 1 percent and Australia’s S&P/ASX 200 Index added 0.3 percent. Hong Kong’s Hang Seng Index gained 0.4 percent. 

Chinese indexes fluctuated. S&P 500 Index futures slipped less than 0.1 percent after the underlying gauge rose 0.3 percent.

 

On the other hand, Japanese yen was steady at 109.13 per dollar after falling 0.4 percent Wednesday, when it had earlier traded near its highs for the year.

The Aussie dollar was back below 80 U.S. cents after the retail sales and trade data.  Australia’s 10-year yield rose four basis points to 2.64 percent

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Platinum Price Plummet 10% Compared Last Year Amid Oversupply of the Commodity

The price of platinum took a breather from its recent rally but managed to stay above the $1,000 an ounce level and in positive territory for the year. Platinum, down 10% compared to this time last year, is under performing the precious metals complex and specifically palladium which is sporting 2017 gains of more than 37% and looks set to top its sister metal for the first time since 2001.

A new report by the World Platinum Investment Council (WPIC) shows the platinum market moved back into surplus during the second quarter as a rise in refined supply and a drop in automotive and industrial demand erased the previous quarter’s 305,000-ounce deficit.

 

WPIC is still predicting a small platinum market deficit for the whole of 2017, but the industry body expects the market to be broadly in balance compared to earlier predictions of a 120,000-ounce deficit this year.

Following a 2016 deficit of 270,000 ounces, 2017 would be the sixth consecutive year that global platinum consumption has outstripped supply primarily as the result of declining mining output and low prices discouraging recycling.

Overall supply is expected to contract further in 2017, due to closures of uneconomic mining at current market prices, with total platinum supply expected to decrease by 2% year-on-year to 7,795 koz. Secondary supply is forecast to slip by 3% when compared to 2016, with a reduction in jewellery recycling outweighing increased autocatalyst recycling.

On the demand side of the equation, conditions remain lacklustre. Nevertheless, it is encouraging to observe the continued resilience of platinum demand from the automotive sector, which is counter to many negative commentaries on the sector. The full-year forecast for the segment is 3,360 koz, down just 2% on 2016 (3,435 koz) and very close to overall automotive demand in 2015 and 2014, despite a further reduction in diesel market share in Western Europe.

 

A bright spot for the platinum market is continuing strength in investment demand. Global investment demand came in at 90,000 ounces during Q2 with bars and coins and exchange-traded funds seeing gains, while exchange stocks remain unchanged. 

This marks the sixth consecutive quarter of positive investment demand according to WPIC and indicates that overall investment growth in 2017 is likely to be greater than expected.

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Shares in Asia Declined as North Korea Tensions Continue to Raves Up

Shares in Asia declined today as investors remained jittery about North Korea. Japan’s Nikkei 225 declined 0.3 percent as the dollar remained soft. Across the Korean Strait, the Kospi slipped 0.28 percent.

In Australia, the S&P/ASX 200 fell 0.24 percent, with the 1.07 percent fall in the financials sub-index weighing on the broader market. Gold mining and energy stocks made moderate gains. Greater China markets were also pressured. The Hang Seng Index was down 0.88 percent. On the mainland, the Shanghai Composite shed 0.44 percent and the Shenzhen Composite slipped 0.223 percent.

 

In economic news, Australia second-quarter GDP rose 1.8 percent compared to the previous year. The Australian dollar fell to trade at $0.7998 from levels around $0.8017 after the release of GDP data. The Aussie dollar fetched $0.7993 at 9:53 a.m. HK/SIN.

Stocks in the U.S. fell as markets re-opened for trade after the Labor Day holiday, with the Dow Jones industrial average tumbling 1.07 percent, or 234.25 points, to close at 21,753.31.

Yields of the U.S. Treasurys were also lower. The yield of the 10-year Treasury note stood at 2.06 percent at the end of the U.S. trading day, around its lowest levels since Nov. 10. Bond yields move inversely to their prices.

The dollar fetched 108.75 yen at 9:54 a.m. HK/SIN after earlier falling as low as 108.49, close to its lowest levels since mid-April. The dollar index, which tracks the dollar against a basket of currencies, stood at 92.338, compared to the 92.2 handle seen on Tuesday.

Although risk aversion weighed on the dollar/yen, “an unabashedly dovish Brainard was unquestionably the reason” for the deeper move into the 108 level, Stephen Innes, APAC head of trading at OANDA, said in a note.

 

In corporate news, the sale of Toshiba’s memory chip business returned to the spotlight after Western Digital offered to leave a consortium in talks to buy the unit from Toshiba. Instead, Western Digital would strengthen its position in its existing joint venture with Toshiba. The company shares were up 3.21 percent despite most other Japanese tech stocks sliding in early trade.

Other market movers in the session included stocks affected in the annual review of the Nikkei Stock Average. Japan Post Holdings and Recruit Holdings rose 2.5 percent and 7.35 percent respectively after being added to the index, while Hokuetsu Kishu Paper and Meidenshatumbled 7.65 percent and 7.09 percent after being removed.

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