Spot values at a glance:
Asian stocks were broadly in the red, falling in tandem with US equities last night. Sterling pound gained to its strongest in 6 months, following shock news of a UK snap election to be held in June. Gold, crude oil and the benchmark 10yr Treasury yield held onto previous sessions’ losses.
- Industrial production in March rose 0.5% month-on-month, matching estimates and accelerating from February’s 0.1% gain.
- The flow of money in the $17 trillion mutual-fund industry in recent weeks signals investors across asset classes are increasingly sceptical of the reflation trade. Fund flows have changed course relative to the post-election stretch when investors’ wagered stronger growth and inflation would lift stocks and bond yields. In the week ended Apr. 5, US equity funds saw almost $15 billion of outflows, the biggest withdrawal since 3Q 2015, and money barely returned the following week, according to EPFR data.
- The S&P 500 Index struggled last night, falling 0.3%, following its best day since 1 Mar., with shares of health care companies, energy producers and finance firms leading the decline. Goldman Sachs Group Inc. dropped almost 5%, the most in 9 months, after its earnings failed to meet estimates and stunning Wall Street with a decline in bond trading revenues.
- The dollar weakened overnight, with the Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, dipping 0.5% and largely helped on by a surging sterling pound. The higher-concentrated Dollar Index broke below the 100 level, and looks poised to test its 200-day moving average of 99.
- Treasuries broadly gained; the benchmark 10yr Treasury yield declined 8bps to 2.17%, its lowest level since Nov. 14, driven by fading expectations for US tax reform as well as continued geopolitical concerns.
- Canadian officials across all 3 levels of government vowed to be vigilant in monitoring the Toronto region’s rapidly accelerating housing market, including possibly taking formal steps aimed at curbing speculative activity, such as taxing homes left empty for speculative purposes. Home prices in the Toronto area climbed 6.2% in March, the biggest 1-month gain on record, according to a benchmark price index released Tuesday by the Canadian Real Estate Association, and are up almost 30% over the past 12 months.
- UK Prime Minister Theresa May said she will seek an early election on June 8, in an unexpected gamble aimed at strengthening her hand going into talks on leaving the EU.
- A poll on Monday showed her party, the Conservative Party, holding a 21-point lead over Jeremy Corbyn’s Labour Party. This means May can be fairly confident of increasing her majority, and bringing Tory lawmakers into Parliament who will back her on the flavour of Brexit she prefers as the Conservative Party’s slender majority of 17 has so far been a bugbear and subjected to road blocks in the upper house and delays in legislation.
- May’s latest announcement was viewed as a positive for the pound, as traders and investors inferred that a stable government with a strong mandate going into negotiations with the EU makes for a benign environment for the currency.
- Japan wants to keep Commerce Secretary Wilbur Ross out of an economic dialogue with the US as it seeks to avoid disputes with the Trump administration over a weaker yen and trade imbalance, according to an official who requested anonymity, Bloomberg news reported. Ross, seen as a hardliner on trade issues, is set to be left out of the formal dialogue between Vice President Mike Pence and Japanese Deputy Prime Minister Taro Aso, another official revealed.
- China’s outward direct investment continued to slump in March, dropping to $7.11 billion or 30.1% lower from a year earlier, the Ministry of Commerce said earlier today, as foreign acquisitions remained under tight scrutiny amid efforts to curb capital outflows.
- The slump follows record overseas purchases last year, when firms snapped up everything from soccer teams to property. Authorities have been tightening capital controls to help stabilize the currency after the yuan in 2016 posted its biggest annual drop in 20 years.
- In its minutes of this month’s policy meeting, the RBA noted that labor market conditions were “somewhat weaker than had been expected” and measures of underemployment “remained high”. In a new addition to its outlook, the RBA added that developments in the labor and housing markets warranted careful monitoring over the coming months.
- The central bank reiterated that headline inflation is likely to accelerate to above 2% this year due to higher oil prices, but the return of core prices to the RBA’s 2-to-3% target would take longer.
- According to a note to its clients, Standard Chartered said it’s unlikely that improvement in Singapore’s growth-inflation dynamics and exports can be sustained, as recent increases in inflation and inflation expectations has been a result of supply-side considerations and doesn’t indicate stronger domestic demand. In addition, China’s stronger demand for Singapore exports is due to inventory restocking, and not growth acceleration.
- Spot gold was little changed after rebounding off the $1,280/Oz handle last night; the precious metal has been well-supported amid increased geopolitical uncertainties surrounding North Korea, the French elections, US-Russia relations, and more recently, UK’s upcoming snap elections.
- To the downside, gold should be heavily supported around its 200-day moving average of $1,256.29/Oz; the key psychological resistance at $1,300/Oz remains.
- Silver for immediate delivery declined by as much as 1.8% to $18.0815/Oz, pulling back to its 200-day moving average near the $18/Oz handle.
- Crude oil futures expiring in May ended 0.5% lower in New York, and declined a further 0.3% to $52.27/bbl in Asia trade earlier today, as US government data showed a slowing pace in the decline of supplies. The American Petroleum Institute reported a drop of 840,000 barrels last week in crude supplies, slower than the 1.3 million fall in the week prior.
- Russian Deputy Energy Minister Kirill Molodtsov reiterated that the nation is meeting its obligations under an OPEC-led agreement to curb output.
- Spot 1.3966
- USDSGD retreated from the 1.4000 handle, declining 0.3% to 1.3950 and testing the key 200-day moving average for the third time in a week.
- The 5-month low of 1.3909 acts as the next key support level. To the upside, the next resistance is at 1.4082.
- Spot 0.7530
- A recent drop in iron ore prices to 6-month lows amid a risk-off tone in global equities has resulted in AUDUSD extending upon yesterday’s decline, falling a further 0.2% to 0.7524 earlier today.
- Having fallen below its 200-day moving average for the third time in 6 weeks, the pair could test its 3-month low of 0.7473 should bearish momentum persists.
- Spot 1.3400
- USDCAD rose 0.3% to 1.3402, extending upon yesterday’s advance. The Canadian dollar has weakened over the past few days due to weaker crude oil prices.
- Spot 6.8853
- The PBOC earlier strengthened its reference rate by 0.27% to 6.8664 to the US dollar, from 6.8849 yesterday.
- USDCNH was little changed, holding around the 6.8800 handle.
- Spot 108.58
- USDJPY failed to regain above its 200-day moving average, reversing upon yesterday’s gain to fall as much as 0.5% to 108.32 earlier.
- The pair on Monday closed below the 200-day moving average for the first time since 9 Nov. last year.
- Spot 1.2829
- GBPUSD rocketed 2.0% to the 1.2900 handle, before paring back some of its gains to 1.2828 around midday in Asia.
- Technically, May’s announcement yesterday may have sparked a turning point in the recent downward trend of the currency pair. GBPUSD rose above its 200-day moving average for the first time since the June referendum last year, breaking above the 1.2800 resistance handle in the process.
- The 1.3000 psychological level could provide some short-term resistance, but over the longer-term, the key level to watch is 1.3500.