August 1, 2016

Daily Observations:

Asian shares climbed as most currencies rallied against the US dollar as reduced bets on US rate hikes spurred appetite for higher-yielding assets. The MSCI Asia-Pacific Index rose for a sixth day, with equity benchmarks climbing more than 0.6% in Hong Kong, Australia, South Korea, Taiwan, Philippines, Malaysia and Singapore.

US:

  • US 2Q GDP grew 1.2% quarter-on-quarter, lower than the 2.5% expected while the figure for the previous quarter was revised lower from 1.1% to 0.8%.
  • Core PCE rose 1.7% from the previous quarter, matching estimates. Personal consumption quickened by gaining 4.2%, up from 1.6% previously but missing estimates of 4.4%.
  • Poorer-than-expected GDP numbers sent odds of a Fed hike lower; Fed funds futures pricing data by Bloomberg show the odds of a rate hike this year has gone down to 35.7% last Friday from 44.9% during Thursday’s close.
  • Treasury yields fell across the curve, with the 10-year falling 5bps to 1.45%; the record low of 10-year yield was 1.32% which was reached on July 6th.
  • The US dollar weakened significantly as the Bloomberg Spot Dollar Index slid 1.3%.
  • The S&P 500 Index, rose 0.2% to 2,173.46, ending July just 2 points below an all-time high after advancing 3.6% for the month. Alphabet, parent company of Google, and Amazon both gained on better-than-expected earnings results, while Exxon Mobil fell after missing analysts’ estimates.

Canada:

  • May GDP fell 0.6% month-on-month and rose 1.0% year-on-year, missing estimates of -0.5% and 1.2% respectively.
  • The 0.6% month-on-month contraction was the fastest contraction pace in more than 7 years, as wildfires which curbed Alberta oil production took their toll.

Japan:

  • The BOJ disappointed investors on Friday after announcing measures that only boosted ETF purchases. The yen gained 2.5% to 102 against the US dollar.
  • Prime Minister Abe is expected to release details on his 28 trillion yen fiscal stimulus package tomorrow, and any further disappointment would likely push the yen higher to the 100 level.
  • Nikkei News reported the BOJ will likely drop its 2-year time frame for reaching its inflation target when it meets again in September.

China:

  • Manufacturing PMI for July slid back below 50.0 to 49.9; the median estimate was 50.0. Non-manufacturing PMI rose from 53.7 to 53.9.
  • As in June, the drag on the manufacturing index came from small and medium enterprises.
  • By contrast, the manufacturing PMI from Caixin Media and Markit Economics jumped to 50.6 from 48.6.

Singapore:

  • DBS Group, one of Swibers’ largest lenders, said it only expects to recover about half of the S$700 million it loaned to the firm.
  • UOB’s CEO Wee Ee Cheong has said that the bank’s exposure to Swiber is “manageable” although he noted the wider difficulties in the oil and gas services industry were a factor behind the 17% climb in UOB’s nonperforming assets for last quarter.
  • OCBC’s CEO Samuel Tsien said last week the bank’s second quarter results included a 61% jump in nonperforming assets.
  • According to Moody’s oil and gas-related loans make up 5.3% of gross lending by Singapore banks as of December.

Precious Metals:

  • Spot gold rose 0.8% to $1,351.2/Oz, as the dollar weakened broadly.
  • Spot silver was relatively unchanged on Friday, ending 0.1%. It has, however, rallied during Asian hours earlier today, gaining 1.4% to $20.6250/Oz.

Oil:

  • WTI oil futures expiring in September snapped a 6-day losing streak, gaining 1.1% to $41.60/bbl.
  • Data released by Baker Hughes showed a fifth consecutive weekly increase in the number of active rigs for drilling, rising by 3 to 374 rigs.

 

USDSGD:

  • Spot 1.3399
  • USDSGD slumped 0.8% Friday to end the week at 1.3397.
  • Two consecutive daily closes below the 1.3400 level could indicate more downside for the currency pair, with the next immediate support being the 2016 low of 1.3313.

 

AUDUSD:

  • Spot 0.7604
  • AUDUSD climbed 0.9% on Friday and extended gains further by 0.3% today to 0.7615.
  • RBA’s rate decision is due tomorrow and a hold could result in the Aussie extending gains above the resistance level of 0.7676.

 

USDCAD:

  • Spot 1.3041
  • USDCAD reversed gains earlier in the week after sliding 1.0% on Friday to close at 1.3028.
  • Despite weaker economic data, gains in crude oil propped up the Canadian dollar and a broadly weaker greenback resulted in a decline for the currency pair.

 

USDCNH:

  • Spot 6.6373
  • The PBOC strengthened its reference rate for a fifth day, by 0.35% to 6.6277 versus the US dollar.
  • USDCNH slid 0.6% last Friday to 6.6307, the lowest level in a month. The currency pair was 0.2% higher at 6.6413 earlier today.

 

GBPUSD:

  • Spot 1.3252
  • A weaker US dollar has managed to prop GBPUSD back above the 1.3200 handle.
  • Attention now turns towards UK PMI data due later in the day as a weaker-than-expected figure will likely increase the odds of a rate cut when the BOE meets later this week.
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