2025-07-21 05:28

Yen holds ground as markets had priced in Japan election results Ruling coalition loses majority in upper house Investors brace for policy gridlock, fiscal worries Japanese markets closed on Monday SINGAPORE, July 21 (Reuters) - The yen firmed on Monday after Japan's ruling coalition lost its majority in the upper house as investors braced for a period of policy paralysis and market disquiet in the world's fourth-largest economy ahead of a deadline on U.S. tariff negotiations. The Japanese markets are closed for the day leaving the yen as an indicator of investor angst, with trading so far suggesting the results were mostly priced. Sign up here. The yen firmed to 148.44 per dollar, but stayed close to the 3-1/2-month low it hit last week as investors fretted about Japan's political and fiscal outlook. The yen nudged higher against the euro to 172.64 and against sterling to 199.03. Prime Minister Shigeru Ishiba's Liberal Democratic Party returned 47 seats, short of the 50 seats it needed to ensure a majority in the 248-seat upper chamber in an election where half the seats were up for grabs. While the ballot does not directly determine whether Ishiba's administration will fall, it heaps political pressure on the embattled leader who also lost control of the more powerful lower house in October. Carol Kong, currency strategist at Commonwealth Bank of Australia, said markets likely priced in a much worse outcome for the ruling coalition heading into the election and doubted that the yen could sustain its strength. "It remains unclear whether Ishiba can indeed survive as the prime minister... and what it means for Japan’s trade negotiations with the U.S. Prolonged political uncertainty will be negative for Japanese assets, including the yen." The election result, while not entirely a shock to markets, also comes at a tricky time for a country trying to get a tariff deal with U.S. President Donald Trump before an Aug. 1 deadline. Japanese government bonds plunged last week, sending yields on 30-year debt to an all-time high, while the yen slid to multi-month lows against the U.S. dollar and the euro. If Ishiba resigns, the political maelstrom could be a trigger for foreign investors to sell Japanese shares and the yen, analysts said. Ishiba though vowed to stay on in his role even as some of his own party discussed his future and the opposition weighed a no-confidence motion. The increased political fragility is likely to constrain the Bank of Japan’s ability to tighten monetary policy in the near term, said David Chao, global market strategist for Asia Pacific at Invesco. "It (BOJ) may be reluctant to add further pressure to an already volatile landscape." TARIFF UNCERTAINTY Investor focus has been firmly on Trump's global tariff salvos, with a Financial Times report last week indicating the U.S. president was pushing for steep new tariffs on European Union products. U.S. Commerce Secretary Howard Lutnick said on Sunday he was confident the U.S. can secure a trade deal with the European Union, but said August 1 was a hard deadline for tariffs to kick in. The euro was steady at $1.16317, while sterling last fetched $1.13417. The dollar index , which measures the U.S. currency against six others, was at 98.381. The European Central Bank is due to meet this week and is expected to hold its rates steady after a string of cuts, while investor attention has been on whether the Federal Reserve succumbs to pressure from Trump to cut interest rates. Trump appeared near the point of trying to fire Fed Chair Jerome Powell last week, but backed off with a nod to the market disruption that would likely follow. The U.S. central bank is widely expected to hold rates steady in its July meeting. Traders are pricing in a rate cut in October with the odds of a second rate cut this year not fully priced in yet. The New Zealand dollar eased 0.18% to $0.5951 after consumer inflation accelerated in the second quarter but stayed below economists' forecasts, leading markets to raise the chance of a rate cut next month given the broader economic weakness. In cryptocurrencies, bitcoin was 0.18% higher at $118,338, holding below a record $123,153 reached last week. https://www.reuters.com/business/yen-takes-japan-election-stride-even-uncertainty-beckons-2025-07-21/

2025-07-21 05:01

ECB set to hold rates at 2% 30% tariff threat bigger than ECB's worst case scenario Tariff uncertainty clouds growth, inflation outlook LONDON, July 21 (Reuters) - The European Central Bank is set to pause for breath on Thursday after eight consecutive interest rate cuts, with the prospect of steeper-than-expected U.S. tariffs looming. The threat tariffs pose to the euro zone is big but there's still little certainty about them, so the question is what happens next. Sign up here. "All the focus goes to September," said Societe Generale senior European economist Anatoli Annenkov. Here are five key questions for markets: 1/ What will the ECB do on Thursday? Hold its main rate at 2%. Data shows little to change the outlook since policymakers met in June, and there's no clarity on what final U.S. tariffs will look like. "The ECB will prefer to wait and see if anything actually pushes them out of the equilibrium they find themselves in," said Salomon Fiedler, economist at Berenberg. 2/ How will the ECB react to the latest tariff threats? Policymakers won't want to look like they're reacting to a threat. New forecasts are not due this week but the ECB will have to reassess its scenarios, sources have told Reuters, as the 30% tariff level U.S. President Donald Trump has threatened is steeper than the 20% the ECB anticipated in its most negative scenario outlined in June. "There is considerable uncertainty about the impact of tariffs on growth and inflation in Europe," said Jefferies chief Europe economist Mohit Kumar. "I expect a wait-and-watch tone from (ECB chief Christine) Lagarde." 3/ What happens after July? It's anyone's guess what level of U.S. tariffs materialise, so traders have held onto expectations for one more rate cut. Money markets price the move roughly as a coin toss between September and December. Jefferies' Kumar reckons an average 10-15% tariff rate wouldn't require the ECB to cut more than once, but a 30% rate would reduce euro zone growth by around 0.5% next year and require an additional cut. But AXA chief economist Gilles Moec said markets were too optimistic on trade and underestimating prospects for more ECB rate cuts. "The baseline is that we actually end up with fairly chunky tariffs, probably not 30%, but still chunky tariffs and we're going to face more deflationary pressure from China," said Moec, expecting two cuts this year. 4/ Should the ECB worry about disinflation? This is not a matter of if, but how much. Policymakers are already worried and cut rates in June to ensure inflation, which they see falling to 1.4% early next year, doesn't stay below the 2% target in the medium term. While the ECB expects it to rebound, that's not a pretty sight with the memory of below-target inflation still recent in policymakers' minds. Tariffs add to the risks. The ECB already thought a 20% tariff with EU retaliation would keep inflation below 2% in 2027 rather than reaching target as the bank currently expects. The prospect of China dumping discounted products on the EU could add to disinflation. But if EU countertariffs include services, the impact becomes more uncertain, Societe Generale's Annenkov said. And Germany's massive fiscal stimulus is an upside risk to inflation. Policymakers are split. Italy's Fabio Panetta, a dove, has said the ECB should continue loosening policy if trade tensions strengthen disinflation. For hawk Isabel Schnabel, the bar for another cut is "very high". 5/ What about further euro strength? Policymakers are worried as a strong euro hurts growth and inflation. Vice President Luis de Guindos has identified $1.20 as pain point. The euro surged nearly 17% from February to early July, hitting its highest since 2021 around $1.18 . It has since pulled back slightly, a relief as economists say it's the speed of the appreciation that's really worrying. Yet analysts reckon it will reach $1.20 in a year, much higher than the $1.13 the ECB assumed for the next two years in June. The euro is one reason why BNP Paribas expects a September rate cut, its head of developed markets Paul Hollingsworth said. Morgan Stanley sees a rally to $1.25 by 2027 and expects this would lower inflation by 0.3 percentage points to 1.7%, preventing it from rising to target. "We're almost paying too much attention to the tariffs themselves than on FX," said AXA's Moec. https://www.reuters.com/business/finance/pausing-breath-five-questions-ecb-2025-07-21/

2025-07-21 04:34

A look at the day ahead in European and global markets from Wayne Cole As far as investors are concerned, Japan's upper house election has been a sell on the rumour, buy (a little) on the fact. Sign up here. Japanese markets are closed for the Marine Day public holiday so liquidity has been lacking, but so far the yen is up a shade on the dollar and euro while Nikkei futures traded in Chicago are much in line with Friday's cash close. Wall Street futures are up a fraction and European futures down a touch. While the ruling coalition lost control of the upper house, by three seats, Prime Minister Shigeru Ishiba seems to be safe for now, though he will have to find support from minor parties to pass legislation. The government can also continue its fraught tariff negotiations with the U.S. administration. The talks still seem deadlocked, partly over agricultural imports which are politically and culturally very sensitive for Japan, as President Donald Trump's arbitrary August 1 deadline approaches fast. The European Union is in much the same situation. U.S. Commerce Secretary Howard Lutnick says he's confident a deal can be struck, but the EU side is preparing a list of U.S. products for retaliation levies. The EU is also trying to use China as leverage with Commission President Ursula von der Leyen and Council President Antonio Costa meeting with President Xi Jinping there on Thursday. Meanwhile, reports suggest Trump might meet Xi sometime in October or November, with the U.S. already having allowed the export of chips to China apparently in return for a resumption of rare earth shipments. Markets are assuming the worst will be avoided on tariffs, though analysts suspect the effective U.S. tariff rate could well be a bit above the 1930's levies that contributed so much to the Great Depression. Much of that optimism rests on earnings with the first of the mega caps reporting this week in the shape of Alphabet (GOOGL.O) , opens new tab and Tesla (TSLA.O) , opens new tab. Results from Lockheed Martin (LMT.N) , opens new tab and General Dynamics (GD.N) , opens new tab should also confirm the windfall from a ramp up in global defence spending. The diary for the rest of Monday is virtually blank, but there's always Trump to watch. Key developments that could influence markets on Monday: - No major data or central bank speakers https://www.reuters.com/world/china/global-markets-view-europe-2025-07-21/

2025-07-21 03:11

SYDNEY, July 21 (Reuters) - The Reserve Bank of New Zealand (RBNZ) said on Monday its sectoral factor model of core inflation was 2.8% year-on-year in the second quarter, down from 2.9% in the prior quarter. The country's official statistics agency earlier in the day released figures that showed annual inflation came in at 2.7% in the second quarter, its highest in a year, leading markets to narrow the odds on a rate cut next month given weakness in the broader economy. Sign up here. Both measures are closely watched by the RBNZ, which has a monetary policy goal of keeping inflation within its target range of 1% to 3%. https://www.reuters.com/world/asia-pacific/rbnz-q2-sectoral-factor-inflation-model-28-yy-2025-07-21/

2025-07-21 03:00

MUMBAI, July 21 (Reuters) - The Indian rupee is poised to retain its weakening bias on Monday, pressured by broad losses in regional peers, lacklustre foreign equity inflows and persistent dollar demand from local corporates. The 1-month non-deliverable forward indicated a flat-to-slightly-weaker open on Monday from 86.1475 in the previous session. The rupee has slipped near to 1% in the last two weeks and now hovers near its lowest level in almost a month. Sign up here. With the dollar/rupee pair "having clipped past 86, it looks like we’re in a slow push higher," said a currency trader at a Mumbai-based bank. "Right now, I don’t see anything that could meaningfully turn the rupee around. The U.S.-India trade deal is one factor, though expectations of India making a relatively favourable one are fading.” Bankers said importers have been actively buying dollars for payments and short-term hedging, while foreign portfolio investor flows have remained muted. Offshore investors have pulled out more than $600 million from Indian equities so far this month, after pumping in nearly $4 billion during May and June. Market participants are keeping an eye on headlines around the U.S.-India trade deal, though most reckon it's unlikely to offer much support to the rupee. The pause in the dollar’s downtrend is adding to the pressure on the rupee. The dollar index climbed 0.6% last week, extending its nearly 1% rally from the previous week. The dollar index was hovering near 98.50 on Monday, while Asian currencies were mostly weaker. Market focus remains on U.S. President Donald Trump’s tariff announcements ahead of the August 1 deadline. Other key events this week include the European Central Bank’s rate decision and China–European Union summit. "A wait-and-see approach remains the most probable course of action for the ECB next week. With the next potential tariff escalation not expected until August 1, there's little reason for a pre-emptive rate cut now," ING Bank said in a note. KEY INDICATORS: ** One-month non-deliverable rupee forward at 86.28; onshore one-month forward premium at 10.25 paisa ** Dollar index at 98.48 ** Brent crude futures at $69.3 per barrel ** Ten-year U.S. note yield at 4.42% ** As per NSDL data, foreign investors sold a net $333.4 million worth of Indian shares on July 17 ** NSDL data shows foreign investors bought a net $38.7 million worth of Indian bonds on July 17 https://www.reuters.com/world/india/rupee-likely-remain-backfoot-asia-fx-dip-inflows-dwindle-2025-07-21/

2025-07-21 00:51

HONG KONG, July 21 (Reuters) - China's Premier Li Qiang announced the start of construction on what will be the world's largest hydropower dam, located on the eastern rim of the Tibetan plateau and estimated to cost around $170 billion, the official Xinhua news agency said. The project is part of China's push to expand renewable energy and reduce carbon emissions. Sign up here. Consisting of five cascade hydropower stations, the dam will be located in the lower reaches of the Yarlung Zangbo River and could affect millions downstream in India and Bangladesh. Li described the hydropower project as a "project of the century" and said special emphasis "must be placed on ecological conservation to prevent environmental damage", Xinhua said in its report on Saturday. Authorities have not indicated how many people the Tibet project would displace and how it would affect the local ecosystem, one of the richest and most diverse on the plateau. But according to Chinese officials, hydropower projects in Tibet will not have a major impact on the environment or on downstream water supplies. India and Bangladesh have nevertheless raised concerns about the dam. NGOs including the International Campaign for Tibet say the dam will irreversibly harm the Tibetan plateau and that millions of people downstream will face severe livelihood disruptions. The dam is estimated to have a capacity of 300 billion kilowatt-hours of electricity annually and is expected to help meet local energy demand in Tibet and the rest of China. The project will play a major role in meeting China's carbon peaking and carbon neutrality goals, stimulate related industries such as engineering, and create jobs in Tibet, Xinhua said in December when the project was first announced. A section of the Yarlung Zangbo falls a dramatic 2,000 metres (6,561 feet) within a short span of 50 km (31 miles), offering huge hydropower potential. The Yarlung Zangbo becomes the Brahmaputra river as it leaves Tibet and flows south into India's Arunachal Pradesh and Assam states and finally into Bangladesh. China has already started hydropower generation on the upper reaches of the Yarlung Zangbo, which flows from the west to the east of Tibet. https://www.reuters.com/sustainability/climate-energy/china-starts-construction-worlds-largest-hydropower-dam-tibet-2025-07-21/