April 12, 2017

Daily Observations:

Most Asian indices fell into the red as investors shunned riskier assets amid heightened geopolitical concerns in Syria and North Korea. Treasuries and oil extended gains while gold surged to a 5-month high.

US:

• Geopolitical tensions reached new heights, with North Korea warning of a nuclear strike if provoked and US President Donald Trump saying on Twitter that the US would “solve the problem”, with or without the help of China. Trump also revealed that he had told China President Xi Jinping working out a trade deal between the 2 nations will be far better for China if they “solve the North Korea problem”.
• US Secretary of State Rex Tillerson said Russia must abandon its support of Syria President Bashar al-Assad’s regime if it wants an “important role” in discussions about Syria’s future, setting up a clash with Russian leaders just before he meets them in Moscow. In related news, the Trump administration said evidence clearly showed Syria was behind a chemical attack on civilians this month and accused Russia of trying to cover for its ally al-Assad by shifting blame and casting doubts.
• Treasuries surged as investors sought out traditional havens from geopolitical risks, as the benchmark 10yr Treasury yield fell 7bps to 2.30% in New York overnight, and declined a further 2bps to 2.28% earlier today.
• The US dollar sold off on the back of heightened geopolitical tensions, with the Bloomberg Dollar Spot Index retreating 0.3% overnight.
• Equities faltered, with the S&P 500 Index closing 0.1% lower, recovering from an earlier drop of as much as 0.8%; information technology stocks recorded the steepest losses.

Canada:

• The Bank of Canada is expected to keep monetary policy unchanged tonight, due in large part to significant policy uncertainties in the US and in spite of the fact recent economic data has been better than expected. BoC Governor Poloz has however made a point of emphasizing the pockmarks of the Canadian economy, claiming recently that “it would be odd to forget about all those downside risks just because a couple of data points came in a little better than expected”.

UK:

• UK inflation’s upward trajectory paused in March as the timing of Easter led to a drop in airfares, offsetting increases in the price of food and clothing.
• Headline CPI in March rose 2.3% from a year ago and 0.4% from a month ago, matching expectations for the former and surpassing the estimated 0.3% for the latter. While the year-on-year rate was unchanged from February’s 2.3% gain, that’s still the highest since 2013 and up from just 0.5% a year ago.
  
• Core CPI rose 1.8% from a year ago, , slowing from the prior figure of 2.0% and less than the median estimate of 1.9%.
• Inflation is already above the central bank’s 2% target and is forecast to accelerate further, squeezing Britons’ finances as wage growth remains weak.

France:

• France’s presidential election is becoming a four-way contest as far-left candidate Jean-Luc Melenchon surges to overtake Republican Francois Fillon by 0.5 points, according to the latest Ipsos poll. Independent candidate Macron is expected to defeat the National Front’s Le Pen in the second round.

Japan:

• Machine orders in February rose 1.5% month-on-month and 2.5% year-on-year, with the former missing expectations of 3.6% and the latter faring better than the predicted 2.5% rise.
• PPI last month rose 0.2% from a month earlier, slightly lower than the estimated 0.3%, and gained 1.4% from a year earlier, in line with expectations.

China:

• China’s producer prices surged again, rising 7.5% from a year ago in March, and close to the quickest pace since 2008 of 7.8% last month; economists were expecting a gain of 7.5%.
• CPI last month rose 0.9% year-on-year, quickening from a 0.8% gain in the month prior, but falling short of the median estimate of 1.0%.
• As per a Bloomberg report, the revival in China’s producer prices, driven in part by higher commodity prices and a pickup in industrial activity, has helped fuel the world’s shift away from deflationary pressures. The rebound has aided company profits, while providing the government respite to rein in borrowing, tighten monetary policy, and cool a speculative housing market. PPI gains are forecast to moderate in coming quarters as lower year-earlier figures fall away.

Australia:

• Australia’s heavy reliance on debt to buy illiquid property assets makes it the most vulnerable developed nation to a sharp economic slowdown, the credit rating agency Moody’s has warned. It found in terms of liquid assets relative to debt, Australia was the most exposed should things turn sour, and not dissimilar to the situation in Ireland just before its property market crashed in 2007.

Singapore:

• According to Bloomberg Intelligence, the Monetary Authority of Singapore is likely to keep monetary policy unchanged on Thursday as it waits for more evidence the economy is gaining traction. The central bank may maintain its neutral stance of zero percent appreciation in the NEER (nominal effective exchange rate), and leave other policy settings, such as the center and width of the bank, unchanged. Inflation and growth have picked up and the outlook has improved since the MAS last convened in October but both are likely to remain well below trend this year.

Precious Metals:

• Spot gold surged to its highest in 5 months, after gaining 1.8% to $1,279.85/Oz earlier today as rising global tensions surrounding Syria and North Korea stoked demand.
• Having broken last week’s high, as well as its 200-day moving average in one go, the yellow metal looks poised to rise higher to $1,300/Oz over the near term.
  
• Silver for immediate delivery mirrored gold’s rally, gaining 2.7% to $18.4278/Oz; the $18.50/Oz resistance remains.

Oil

• Crude oil futures expiring in May extended its rally further by 0.4% to $53.60/bbl earlier today, registering its longest winning streak since December as Saudi Arabia was said to probably support an extension to the OPEC-led output cuts past June depending on the stance of other OPEC nations such as Iraq and Iran.
• US crude supplies fell by 1.3 million barrels last week, less than the 1.5 million expected, the American Petroleum Institute reported.

USDSGD:

• Spot 1.4026
• USDSGD declined yesterday to snap an 8-day winning streak. The pair extended declines today, dropping a further 0.2% to 1.4017.

AUDUSD:

• Spot 0.7486
• AUDUSD declined last night by 0.5% to 0.7474, a fresh 3-month low, with the currency pair falling back below the 0.7500 support on the back of continued iron ore weakness.
• The momentum remains strongly to the downside for the currency pair, as it remains on due course to test the next support at 0.7300.

USDCAD:

• Spot 1.3337
• USDCAD pared an overnight 0.3% gain to 1.3357, ahead of the release of the Bank of Canada’s monetary policy decision later today.
• To the downside, further support is expected around the 100-day moving average of 1.3288.

USDCNH:

• Spot 6.9040
• The PBOC earlier kept its yuan fixing little changed, at 6.8940 to the US dollar.
• The central bank skipped the use of reverse-repurchase agreements for an 13^th straight day, the longest run since it began daily open-market operations last year, as cash supply is seen to be improving and lenders are now more willing to lend.
• USDCNH fell 0.1% to 6.9003 overnight on the back of USD weakness but has since recovered back some of its declines.

USDJPY:

• Spot 109.54
• USDJPY fell below the 110 support, sliding 1.2% to a session low of 109.35 earlier.
• With the key 110 level breached, the next possible resistance lies at the 200-day moving average of 108.70.

GBPUSD:

• Spot 1.2484
• GBPUSD gained 0.6% to 1.2495, following robust inflation data from the UK yesterday. A better-than-expected jobs report later today could possibly drive the pair back to March highs at the 1.2600 handle.