Spot values at a glance:
Stocks tumbled in Asia, following a US slump overnight, as investors headed for havens after US President Trump dialled up his warning to North Korea on threats to American allies. Safe haven assets such as the yen, US Treasuries and gold rallied.
- US President Donald Trump escalated his rhetoric towards North Korea on Thursday, saying his earlier threat to potentially bring “fire and fury” down on the nation maybe “wasn’t tough enough”.
- Trump’s latest remarks reinforced the aggressive stance the US president has taken in the confrontation with North Korea, despite efforts by Secretary of State Rex Tillerson to tamp down rhetoric. Trump held meetings on the situation during the day with Vice President Mike Pence, National Security Adviser H.R. McMaster and White House Chief of Staff John Kelly. He declined to rule out a pre-emptive strike on Pyongyang, saying, “We’ll see what happens”.
- North Korea had responded to Trump’s earlier warning by outlining a detailed plan to fire four Hwasong-12 intermediate-range ballistic missiles toward the US territory of Guam. The Pacific island is home to a strategic US naval base and airfield.
- Initial jobless claims for the week ended Aug. 5 rose to 244,000, from 241,000 the prior week and more than the 240,000 expected.
- Producer prices in July slipped 0.1% month-on-month and rose 1.9% year-on-year, less than the median estimates of 0.1% and 2.2% respectively and slower than their prior month’s figures.
- The Fed’s New York President William Dudley cautioned that “it’s going to take some time” for inflation to rise to the central bank’s 2% target even as he offered a generally positive outlook for the US economy, job market and price pressures.
- Household debt outstanding (everything from mortgages to credit cards to car loans) reached $12.7 trillion in the first quarter, surpassing the previous peak in 2008 before the effects of the housing market collapse took its toll, recent Federal Reserve Bank of New York data show. While rising debt isn’t inherently bad or dangerous, what’s concerning here is that people are borrowing more not necessarily because they’re confident about their financial prospects. Rather, they’re doing it for necessities like education or transportation and, in many cases, just to get by, according to Bloomberg News.
- Tech stocks plummeted Thursday, with the Nasdaq Composite Index falling 2.1%. The S&P 500 Index slumped 1.5% for its biggest loss since May 17. The Dow Jones Industrial Average shed 0.9% to close below the 22,000 mark. Volatility spiked with the VIX Index rising to close at its highest level since the US election.
- US Treasury yields fell across the curve, as investors shed riskier equity assets in favour of traditional safe havens such as US Treasuries. The benchmark 10yr Treasury yield fell 5bps to 2.20% in New York, its lowest close in 6 weeks.
- The US dollar was fairly stable despite the big drop in US equities. The Bloomberg Dollar Spot Index managed to erase an overnight loss of 0.1% during Asia trade earlier today.
- Investors will keep a watchful eye out for the release of US CPI data for July, due later today. Price pressures have come in below estimates for the past 4 readings; economists are expecting a 0.2% rise month-on-month for the core measure.
- Industrial production in June rose 0.5% month-on-month and 0.3% year-on-year, surpassing expectations of 0.1% and -0.1% respectively, an improving upon May’s figures.
- Manufacturing production was unchanged from a month ago in June, and gained 0.6% from a year before, both in line with expectations and improving upon the prior month’s changes of -0.1% and 0.3%.
- RBA Governor Philip Lowe said market expectations of an interest rate hike some way down the track were reasonable and that the bank had been prepared to be “patient” on monetary policy, a position bolstered by a steady unemployment rate. The RBA is balancing providing stimulus to the economy while trying to discourage household debt from rising too high, he added.
- Singapore’s economy posted faster growth in the second quarter than previously estimated by the government as a recovery in global trade helped to buoy manufacturing.
- GDP last quarter expanded by 2.9% year-on-year and 2.2% on a seasonally adjusted and annualized basis from the previous quarter, beating the median consensus of 2.5% and 0.5% respectively, and accelerating from the prior quarter as well.
- Singapore has benefited from a recovery in global trade since late last year, led by strong Chinese demand for electronics and other manufactured goods. The economy is likely to grow 2.5% in 2017, Prime Minister Lee Hsien Loong said on Tuesday, a projection reiterated by the Ministry of Trade and Industry on Friday.
- The Trade Ministry cited three main risks to the global economy – trade protectionist threats, faster-than-expected interest-rate increases in the U.S. and a pullback in credit demand in China, but said the potential for these to have a significant impact on growth has eased compared to three months ago.
- Spot gold rose by as much as 0.6% to $1,289.07/Oz overnight before paring some of its gain earlier this morning. The rally overnight, which pushed gold to its highest level since Jun. 8, was due to increased safe haven demand following mounting geopolitical tensions between the US and North Korea.
- The precious metal has broken above a key downward multiyear trendline, in play since 2011. An upward move above the $1,300/Oz handle should confirm the break and signal the start of a new long-term upward trend.
- Hedge fund manager Ray Dalio recommends investors consider placing 5% to 10% of their assets in gold as a hedge against current political and economic risks. “The emerging risks appear more political than economic, which makes them especially challenging to price in,” wrote Dalio, who rarely makes specific market recommendations.
- Among the risks Dalio mentions: “Two confrontational, nationalistic, and militaristic leaders playing chicken with each other” and “the odds of Congress failing to raise the debt ceiling (leading to a technical default, a temporary government shutdown, and increased loss of faith in the effectiveness of our political system) rising.”
- Bullion has climbed 12 percent in 2017, overtaking the S&P 500 index which has only managed to rise 9.8% following last night’s slump.
- Silver for immediate delivery gained above the $17/Oz resistance Thursday, and extended its gain last night by as much as 0.9% to $17.2488/Oz, although it has since erased all of it this morning to remain unchanged on the day.
- Crude oil futures expiring in September fell 2.0% in New York and a further 0.4% to $48.39/bbl earlier this morning after a pledge by OPEC’s 2 biggest producers to strengthen their commitment to cuts failed discourage crude oil bears.
- Saudi Arabia’s energy minister Khalid Al-Falih and his Iraqi counterpart Jabbar al-Luaibi met in Jeddah and agreed to ensure coordination of their nations’’ oil policies. OPEC boosted demand estimates for its crude through 2018 by 100,000 barrels per day, thought the group’s July output rose to the highest this year on Libya, according to a report.
- Spot 1.3622
- USDSGD fell 0.1% to 1.3622 earlier, erasing a previous day’s gain and retreating from the 1.3650 resistance tested overnight.
- 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 0.7849
- AUDUSD extended its decline below the 0.7900 handle earlier today, falling 0.6% to 0.7839 after RBA Governor Lowe said a weaker AUD would help Australia reach full employment more quickly.
- The current risk aversion in markets have also dampened demand for the Australian dollar.
- Spot 1.2742
- USDCAD added to its recent rebound, advancing 0.2% to 1.2753, its highest level in almost a month. Overnight Canadian dollar weakness has been mainly driven by a decline in crude oil prices.
- 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 6.6861
- The PBOC strengthened its reference rate by 0.19% to 6.6642 per US dollar earlier today.
- USDCNH rebounded sharply from an earlier low of 6.6579 – an 11-month low, and rose 0.3% to 6.6948.
- The previous support-turned-resistance of 6.7000 should be tested soon. However, the momentum remains firmly to the downside.
- 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 108.95
- USDJPY slipped 0.8% to 108.91, nearing a 3-month low of 108.83 last reached in mid-June, after US President Trump intensified warnings to North Korea, triggering demand for safer assets.
- From a technical analysis point of view of USDJPY, the rising wedge pattern, established since April, has been breached. A move below the 108 handle will confirm the break and signal further downside for the currency pair.
- Spot 1.2995
- GBPUSD was largely unchanged on the day, maintaining 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.