UK and European stocks failed to join Monday’s rally in Asian equities; the FTSE 100 fell 0.8% while the Stoxx 600 retreated 0.7%, both on light volumes. The US markets were shut for a national holiday. Meanwhile, most Asian indices dropped for the first time in a week in its morning session.
- Yields on 10-year US Treasuries fell 3bp to 1.41%, resuming its 12bp-fall from last week. Futures traded have indicated that the chance of a Fed raising rates this year have dwindled to 12%, from about 50% prior to the vote on Brexit.
- The RBA meets later today to decide on its cash target rate. According to Bloomberg, traders are pricing in low odds, about 14%, of a rate cut today and a higher 47% in their next meeting in August.
- Retail sales in May rose 0.2% from a month earlier, lower than the 0.3% rise expected.
- The nation’s trade deficit last month grew to A$2.2 billion, from A$1.8 billion in April and larger than the predicted deficit of A$1.7 billion.
- Australian vote counting resumes today, but an election result may not be known until the weekend.
- Standard Life Investments suspended trading of its £2.9 billion UK Real Estate fund yesterday in the strongest signal yet that Brexit will hit the property market. Investors are pulling out money as industry commentators warned that London office values could fall by as much as 20% over the next three years after the country leaves the EU.
- Denmark became the latest Nordic country to experience rising support for the EU, defying predictions that Brexit would generate increased Euro-skepticism in the region. According to a poll, 69% of Danes now back EU membership, rising from 60% prior to last week’s UK referendum.
- Italy is considering using state funds to recapitalize its banking system, a plan that Fitch ratings warned would likely face resistance from the EU. Italy’s FTSE MIB Index was the biggest decliner yesterday as the nation’s lenders dropped after the ECB requested Banca Monte dei Paschi di Siena SpA to draw up a plan for tackling its bad-loan burden.
- The Caixin China MI Services for June came in at 52.7, higher than the previous month’s figure of 51.2.
- The PBOC said in its quarterly statement it will keep the yuan basically stable at reasonable and equilibrium levels and maintain a prudent monetary policy.
- PMI for Jun, released last night, fell to 49.6 from 49.9, short of the median estimate of 49.8.
- Spot silver pared some of its gains this morning as it retreated back below $20/Oz. The precious metal had soared above $21/Oz yesterday for the first time in two years amid increased speculation on more central bank stimulus.
- Key support for silver should come in at $18.50/Oz, while the next significant resistance resides at the $21.50/Oz level.
- Spot gold retreated about 1.0% after failing to breach its previous high around the $1,360 handle.
- The gold/silver ratio plummeted to 64.2 yesterday, the lowest in two years.
- Spot 1.3474
- The Singapore dollar is showing signs of weakening for the first time in a week.
- USDSGD rose modestly by about 0.2%, making a higher high for the first time in 5 days.
- Spot 0.7509
- The Aussie dollar has steadily weakened throughout the morning, dropping by as much as 0.4% back below the 0.7500 handle, following yesterday’s 0.4% rise.
- The currency pair should continue to hover around current levels, as most traders and investors are likely to wait for the RBA’s policy decision later today before doing anything.
- Spot 1.2887
- The loonie rose for a fifth day, extending its advance by another 0.3% against the US dollar. The rally is the longest since February.
- The currency strengthened even as a report showed slower expansion in the manufacturing sector in June and a central bank survey found fewer Canadian businesses predict faster sales growth over the next 12 months.
- Spot 6.6805
- The PBOC weakened its reference rate to 6.6594, the weakest since Dec 2010.
- Offshore yuan remains largely unchanged from yesterday’s close of 6.6782.
- China is more likely to fine-tune monetary policy in 2H with targeted RRR cuts or across-the-board cuts if needed, China Securities Journal commentary said today.
- Spot 1.3258
- GBPUSD continues to be supported above the 1.3200 handle.
- The currency pair rose to 1.3341 last night, but has since retreated back to its lows.
- A failure to trade back above the intraday resistance of 1.3350 could signal potential sterling weakness. A swift return to the post-Brexit low of 1.3121 looks increasingly likely.