Spot values at a glance:
Asian stocks reversed earlier gains as investors continued to take risks off the table even as American officials tried to ease concerns amid an escalation in tensions between the US and North Korea. The US dollar gained while crude oil futures maintained near Wednesday’s highs. Gold, a traditional safe haven asset, rallied overnight to a 7-week high.
- US Secretary of State Rex Tillerson said the U.S. is engaged in a very active diplomatic effort to halt Kim Jong Un’s pursuit of a nuclear weapon that could strike the US mainland. He said North Korea should be looking for talks, adding too that “Americans should sleep well at night, have no concerns about this particular rhetoric of the last few days”.
- President Donald Trump tweeted that the US atomic arsenal is more powerful than ever, while Defence Secretary Jim Mattis said in a statement that North Korea “should cease any consideration of actions that would lead to the end of its regime and the destruction of its people”.
- Meanwhile, Korean and Japanese officials seem to be allaying fears of a war breakout. An unidentified official at South Korea’s presidential office was cited as saying there’s no “imminent crisis,” and a senior Japanese official said there’s no mobilization for a military strike, with very few people in the government taking Trump’s comments seriously.
- The Fed’s Chicago President Charles Evans said it would be “reasonable” to announce the beginning of a reduction of the central bank’s balance sheet next month, while cautioning that disappointing inflation data may delay interest-rate increases as technological disruption dampens price pressures.
- 2 of the biggest money managers in the US have warned investors it may be time to dial back on risk. According to an allocation report by Pacific Investment Management Co., investors should pare US stocks and high-yield debt while shifting to lower-risk assets, such as Treasuries and mortgage-backed securities, given that “asset prices generally are fully valued”. Similarly, T. Rowe Price Group Inc. echoed that view on prices as it cut the stock portion of its asset allocation portfolios to the lowest level since 2000; holdings of high-yield bonds and emerging market bonds were reduced as well for the same reason.
- The S&P 500 Index (-0.04%) almost erased losses in the final hour of trading and the CBOE Volatility Index pared an advance following Rex Tillerson’s comments that military confrontation was not imminent. He was one of several officials in the Trump administration who sought to fine-tune the message on how it will address North Korean threats. The Dow Jones Industrial Average (-0.17%) and Nasdaq Composite (-0.28%) pared some of their earlier declines as well.
- The benchmark 10yr Treasury yield fell as much as 5bps before trimming that to a single point, to end its session at 2.25%.
- The US dollar was largely unchanged in New York, as initial USD buying safe haven flows against some risky currencies was offset by USD selling as investors bought safe haven currencies. The dollar gained in Asia trade earlier today with the Bloomberg Dollar Spot Index rising 0.1% and the Dollar Index holding above the 93.500 handle.
- Europe’s soaring currency, a source of headache for its stock market, has also been a recurring theme for the region’s executives in the latest earnings season. A 12% rally in EURUSD this year is causing speculation that profits in the region will be hurt, particularly for exporters who have to both translate their overseas sales back from less valuable currencies, and face competition from cheaper products abroad.
- Every 10% move in the euro wipes out as much as 8% of earnings if not hedged, Morgan Stanley strategist Matthew Garman wrote in an Aug. 1 note.
- Prime Minister Theresa May’s government failed to reach an agreement with Scotland’s administration over repatriation of powers after Britain leaves the EU, as Scottish lawmakers said they would continue to reject the Brexit bill in its current form.
- Machine orders in June fell 1.9% month-on-month and 5.2% year-on-year, performing was than the median estimates of 3.6% and -1.1% respectively.
- PPI in July rose 0.3% from a month ago and 2.6% from a year before, compared to a 0.1% and 2.,2% rise in June and faster than the consensus estimates of 0.2% and 2.3% respectively.
- The Reserve Bank of New Zealand held its benchmark interest rate at a record low of 1.75% and said it expects to keep it there for two years amid weak inflation. The central bank’s surprisingly cautious tone in recent months has been justified by data since that showed consumer-price gains weaker than forecast and economic growth disappointing.
- Spot gold rose by as much as 0.9% to $1,278.85/Oz before paring some of its gain earlier this morning. The rally overnight, which pushed gold to its highest level since mid-June, was mainly due to increased safe haven demand following increased geopolitical tensions between the US and North Korea this week.
- The precious metal is currently testing a key downward multiyear trendline, in play since 2011. An upward move above the $1,300/Oz handle should confirm the break above the trendline and signal the start of a new long-term upward trend.
- Silver for immediate delivery mirrored gold’s advance, advancing 2.1% to $16.9724 to test the key $17/Oz resistance for the third time since end-June.
- Crude oil futures expiring in September was little changed on the day after rising 0.8% to $49.56/bbl in New York last night as US production eased and crude inventories extended declines, trimming a supply glut.
- Output slid for the second time in 3 weeks, according to Energy Information Administration data, while stockpiles dropped by 6.5 million barrels, almost triple the median forecast in a Bloomberg survey. Gasoline inventories, however, unexpectedly rose for the first time since early June.
- Saudi Arabia and Iraq oil ministers will hold a press conference Thursday after a meeting to discuss the crude production-cuts agreement, according to a Saudi Arabia energy ministry media official.
- Goldman Sachs Group Inc. is acknowledging that it’s getting harder for institutional investors to ignore the cryptocurrency market with total assets ballooning to $120 billion and bitcoin soaring more than 200% this year.
- Spot 1.3637
- USDSGD reversed an earlier fall of as much as 0.1% to 1.3618, recovering back above Wednesday’s close of 1.3630.
- A move higher above the 2-week high of 1.3650 may drive the currency pair to the next key resistance region of 1.3700.
- The support below lies at 1.3500, where the base of a double-top formation on the pair’s multiyear technical chart lies. However, a recovery back up to the resistance level of 1.3700 remains more likely.
- Spot 0.7880
- AUDUSD failed to hold above the 0.7900 handle earlier today, after falling to near its 1-month low last night.
- The next resistance target resides at the 2-year high of 0.8164, while to the downside, 0.7875 is expected to provide support.
- Spot 1.2717
- USDCAD rose 0.3% to 1.2721, a 3-week high, earlier following extended weakness from the Canadian dollar.
- Having broken above 1.2600 last week, the pair is on track to extend its rebound higher towards the 1.2800 key resistance level.
- Spot 6.6809
- The PBOC strengthened its reference rate by 0.45% to 6.6770 per US dollar earlier today.
- USDCNH fell by as much as 0.4% to 6.6665 earlier today, the lowest level in more than 10 months.
- According to analysts surveyed by Bloomberg, most feel the yuan’s advance will be sustainable short-term as a robust China growth outlook, coupled with a stable foreign-exchange policy, help encourage more capital inflows.
- The heightened geopolitical tensions between North Korea and the US have also increased demand for the yuan as the currency tends to be more stable than other regional currency in times of concern, according to CEB International Investment Corp.
- Spot 109.99
- USDJPY recovered back to the 110 handle after declining for the past 2 days as traders stepped back from their risk aversion bias to assess the North Korea tensions.
- Safe haven inflows into the yen have also been muted considering the fact that Japan is likely to be implicated as well should a North Korean war break out.
- Current support for USDJPY lies around the base of a rising wedge pattern, established since April, at around 109.50.
- Spot 1.2997
- GBPUSD recovered from its overnight low and was better offered in Asia around the 1.3000 handle.
- Over a longer-term, the key support remains at 1.2800 while the important resistance target is at 1.3450.