16 June, 2017

Daily Observations:

Asian shares advanced, led by a rally in Japan as the yen held losses after the Bank of Japan left monetary policy unchanged. Treasuries maintained declines and gold extended its drop as investors digested the more hawkish tone struck by the Federal Reserve’s stance that the strength of the labour market will prevail over weakness in inflation.

US:

• Industrial production registered zero month-on-month growth in May, slowing from a 1.1% rise in April and missing the median estimate of 0.2%.
• The Philadelphia Fed business outlook gauge slipped from 38.8 last month, to 27.6 in June, but managed to surpass economists’ median forecast of 24.9. The Empire manufacturing index, meanwhile jumped to 19.8, from -1.0 in May, eclipsing the consensus expectation of 5.0.
• Initial jobless claims for the week ended June 10 slid to 237,000, from 245,000 in the prior week, and less than the 241,000 predicted.
• At her post rate-hike conference, Fed Chair Janet Yellen told reporters no to overreact to a few readings, in reference to the recent slowdown in inflation, and added that data on inflation can be noisy.
• The US dollar maintained near a 1-week high earlier today, after the Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, rising 0.5% in New York.
• US yields rose across the board, with the benchmark 10yr Treasury yield rising 3bps last night and a further 1bp to 2.17% earlier today.
• US stocks fell for the fourth time in five days as selling in technology shares resumed. The benchmark S&P 500 Index shed 0.2%, after paring earlier session declines of as much as 0.8%. The tech-centric Nasdaq Composite slid 0.5%.
• Special Counsel Robert Mueller’s move to investigate whether Donald Trump sought to get the FBI to back off from a probe of his former national security adviser has angered the president and raised the stakes in the inquiry of Russian meddling in the US election. Although White House officials tried earlier this week to tamp down speculation that Trump might try to fire Mueller, the escalating conflict led members of Congress of both parties to warn Trump yesterday against the temptation to do so.

Canada:

• Manufacturing sales in April advanced 1.1% from a month earlier, accelerating from March’s 0.8% rise and beating the median estimate of 0.9%.
• A Bloomberg survey of 17 economists found the majority now project a rate increase this year. 6 predict higher rates in October and 2 suggest a September hike. That’s an about face from a week ago, when only 2 predicted rates would rise in 2017.
• According to Bloomberg calculation son overnight index swaps, traders are pricing in a full 25bps hike to the central bank’s 0.5% benchmark interest rate by December.
• The shift comes after Governor Poloz and his senior deputy Wilkins jolted markets in separate statements this week with explicit language about the prospect of higher rates.

UK:

• In the biggest division on interest rate in 6 years, the Monetary Policy Committee voted by 5 to 3 to maintain the key rate at a record-low 0.25% yesterday. Michael Saunders and Ian McCafferty broke ranks to join Kristin Forbes in demanding an immediate hike, as officials warned that inflation, already at 2.9%, could accelerate more than previously thought.

China:

• China’s holdings of US Treasuries rose for a third straight month in April, reaching $1.09 trillion, the highest in 6 months amid signs the economy is stabilizing.
  
• Things are starting to look up in China, according to a Bloomberg report, following several years of persistent capital flight and soft economic performance. The manufacturing sector is growing again, factory prices are reflating, and capital outflows have shown signs of abating. All that has helped to stabilize the yuan and enabled the PBOC to accumulate reserves.

Japan:

• With inflation still distant from its target, the Bank of Japan maintained its promise to keep pouring stimulus into the economy, days after the Fed raised interest rates and set out more details of its plan to normalize policy. The BOJ will continue to manage the yield curve through a negative interest rate and buying trillions of yen worth of bonds, it said in a statement earlier today.
• Japan’s longest period of economic expansion in a decade has provided some support for its central bank, which hasn’t changed policy since Sep 2016, yet inflation remains low. While the amount of bonds it buys is slowing, there is little expectation that it will substantially change course. Calls are growing louder for the central bank to at least map some details of how it may eventually exit stimulus.

Singapore:

• Non-oil domestic exports in May declined 1.2% from a year ago, more than the 0.8% drop in April but less than the consensus estimate of a 5.6% contraction.
• Electronics exports over the same period jumped 23.3% year-on-year, accelerating upon the prior rise of 4.8% and exceeding analysts’ consensus estimate of 11.9%. This was the biggest increase since Feb 2012.

Bitcoin:

• Bitcoin sank as much as 19%, putting the digital currency on pace for its worst week since Jan 2015. After flirting with $3,000 on Monday, the cryptocurrency declined to as low as $2,076.16 last night although it has since recovered back above $2,300.

Precious Metals:

• Spot gold retreated 0.6% to $1,251.58/Oz earlier, and is set for its second weekly decline after the Fed increased borrowing costs Wednesday and as US economic data give traction to the Fed’s suggestion that the strength of labour market will prevail over weakness in inflation in determining rate path.
• The precious metal has fallen below the $1,260/Oz handle, which could be a worrying sign for gold bulls. The next region of support lies below at the $1,240/Oz support, where the 200-day moving average resides as well.
• Silver for immediate delivery fell to fresh 3-week low, 1.3% lower to $16.6615/Oz, confirming the break below the key $17/Oz support.

Oil

• Crude oil futures expiring in July was little changed earlier today, following an overnight 0.6% decline to $44.46/bbl. Oil is headed for its longest run of weekly losses since August 2015.
• US inventories fell less than expected last week, keeping supplies at more than 100 million barrels above the 5-year average, according to data form the Energy Information Administration on Wednesday.
• Libya, exempt from the OPEC-led deal to cut supply, will boost output to 1 million barrels a day by the end of July, according to National Oil Co.
• The low last month of $44.13/bbl remains as the next level of support.

USDSGD:

• Spot 1.3832
• USDSGD gained 0.3% to 1.3843, strongly rebounding off the 1.3709 low from a day before.

AUDUSD:

• Spot 0.7598
• AUDUSD edged 0.1% higher to test the 0.7600 earlier today, after a better-than-expected jobs report in Australia yesterday provided tailwinds for the Australian dollar.
• The currency pair reached a 2-month high of 0.7636 yesterday, but failed to close above 0.7600.

USDCAD:

• Spot 1.3262
• USDCAD slipped 0.2% to 1.3250, and looks poised to resume its downside momentum following its steep plunge to 1.3165 earlier this week.
• Downside moves may be capped around the lows though, due to a potentially stronger US dollar as well as persistent weakness in crude oil.

USDCNH:

• Spot 6.8169
• The PBOC earlier weakened its fixing rate by 0.21% to 6.7995 per US dollar.
• USDCNH extended its rise above 6.8000, gaining 0.2% to 6.8186 earlier today.

USDJPY:

• Spot 111.17
• USDJPY recovered back above the 200-day moving average, rising sharply by 1.5% to 111.27 earlier.
• The currency pair is headed for its biggest weekly gain in more than a month after economists pushed back expectations of when the BOJ will exit its record stimulus program.

GBPUSD:

• Spot 1.2773
• GBPUSD rose 0.8% to 1.2795 following yesterday’s policy decision as investors increased bets on a rate increase this year amid inflation climbing further above the BOE’s 2% target rate.