Spot values at a glance:
Most Asian stocks rebounded today after worry emanating from an escalation of tensions between the US and North Korea showed signs of easing. Safe haven assets such as the yen and gold pared gains from Friday. US inflation data released last Friday was weaker than expected. Economic data from China today disappointed, however Japan’s second-quarter GDP growth topped estimates.
- Amid escalating tension over North Korea, Chinese President Xi Jinping told US President Donald Trump that all parties involved should keep their cool and steer clear of fighting words, during a phone call on Friday night. Both leaders agreed Kim Jong Un’s regime must stop its provocative behaviour, another sign that it’s been getting tougher for Xi to support North Korea.
- Earlier Friday, Trump said he was considering more economic sanctions, and that a military response could be in the offing should Kim Jong Un make any “overt threat”. However, 2 top U.S. national security officials sought to tamp down fears of imminent nuclear war with North Korea following days of heightened rhetoric by President Donald Trump, as America’s top general prepares to meet with South Korea’s leader.
- US President Trump is poised to sign an executive memorandum on Monday urging American agencies to consider investigating China’s intellectual property practices, even as he continues to seek more co-operation from his counterpart Xi Jinping on dealing with Kim Jong Un’s regime. Trump had previously promised action against foreign powers like China that are “dumping steel” onto the US market; last week, Commerce Secretary Wilbur Ross said the US would look to impose levies on imports of aluminium foil from the world’s second-largest economy.
- US CPI in July came in lower than expected, rising 0.1% month-on-month and 1.7% year-on-year, missing out on the median estimates of 0.2% and 1.8% respectively. Core CPI over the same periods came in at 0.1% and 1.7% as well, compare to the 0.2% and 1.7% expected.
- The record drop in the lodging away from home category reflects a plunge in prices at hotels and motels, and follows a smaller decline of 1.9% in June. The continuing fall in vehicle prices also may reflect weakness in auto sales. Other categories showed increases including apparel, medical care and transportation services.
- Federal Reserve Bank of Minneapolis President Neel Kashkari said his colleagues have voted to raise interest rates because they are worried about accelerating inflation in the future, a concern he likened to a “ghost story” or in other words, something which can’t be proven. He added that there is no evidence in any of the data that wages have this acceleration factor and are all of a sudden going to take off.
- Dallas Fed President Robert Kaplan also said the Fed can hold off on raising interest rates until inflation shows signs of picking up after he commented that he would like to see “more evidence” of making progress in reaching the Fed’s inflation objective.
- The US dollar weakened to its lowest level in a week on Friday, and held onto losses during Asia trade earlier today, following last week’s weaker-than-expected inflation data. The Bloomberg Dollar Spot Index fell 0.3% while the Dollar Index gave up 0.4% to fall back to the 93 handle.
- The benchmark 10yr Treasury yield closed at 2.19% Friday, its lowest close in 6 weeks. The 10yr yield reversed course today, gaining 2bp to 2.21% earlier after US officials on Sunday sought to tamp down fears of a nuclear war with North Korea.
- US equities edged higher Friday following a sharp decline in the prior session. The S&P 500 Index and the Dow Jones Industrial Average both ended 0.1% higher, while the Nasdaq Composite rebounded 0.6%.
- China’s economy posted its worst showing this year as curbs on property, excess borrowing and industrial capacity began to bite.
- Industrial output in July gained 6.4% year-on-year, slowing from June’s 7.6% rise and the median estimate of 7.1%.
- Retail sales over the same period gained 10.4%, compared to 11.0% in June and 10.8% expected by analysts.
- Fixed-asset investment in urban areas rose 8.3% from a year ago, slower than the prior gain of 8.6% and the expected rise of 8.6% as well.
- Japan’s economy grew for a sixth straight quarter, extending the longest expansion in more than a decade, as a strong pick-up in demand at home compensated for softer exports.
- GDP in the second quarter of this year rose by an annualized 4.0% in the 3 months ended June 30, bettering the estimated 2.5% and the prior figure of 1.5%.
- Private consumption rose 0.9% in the second quarter from the previous 3 months, surpassing the 0.5% expected. Business spending over the same period rose 2.4%, more than the 1.2% predicted.
- Retail sales in June grew 1.9% year-on-year, beating the consensus estimate of 1.0% and gaining pace from the prior month’s gain of 0.8%. Ex-auto sales, retail sales over the same period rose 4.0%, more than the 1.9% predicted.
- Spot gold retreated 0.3% to $1,285.53/Oz earlier today, after it hit a 9-week high last Friday following weaker-than-expected inflation data, thus weakening the case for the Fed to raise rates.
- 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 last week recommended 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.”
- Silver for immediate delivery was largely unchanged on the day as well this morning. The metal had closed above its 200-day moving average on Friday for the first time since 8 June.
- Crude oil futures expiring in September was largely unchanged earlier today following Friday’s 0.5% gain to $48.82/bbl as Libyan output and exports declined amid security threats and tension among port workers.
- Libya’s biggest oil field cut output by more than 30%, while the head of a union said loadings at Zueitina port ceased after employees demanded better working conditions.
- US drillers added 3 crude rigs last week, according to Baker Hughes Inc.
- Spot 1.3598
- USDSGD declined by as much as 0.2% to 1.3587 earlier, with broad USD weakness a continuing theme heading into a new week.
- 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 0.7906
- AUDUSD rose 0.3% to 0.7919 earlier, gaining back above the 0.7900 handle, and failing to hold below the 0.7876 support.
- From a technical perspective, continued support above the 0.7900 handle should lead to a retesting of the 0.8000 psychological level.
- Spot 1.2674
- USDCAD slipped 0.4% to 1.2677 on Friday, and remains almost unchanged earlier today. Friday’s decline was driven mainly by USD weakness following weaker-than-expected inflation data.
- The 1.2600 handle is expected to provide support. The pair remains on track to extend its recent rebound higher towards the 1.2800 key resistance level.
- Spot 6.6814
- The PBOC strengthened its reference rate by 0.06% to 6.6601 per US dollar earlier today.
- USDCNH rebounded from Friday’s low, gaining 0.1% to 6.6814 earlier.
- The previous support-turned-resistance of 6.7200 should provide cap to ensure further currency pair gains are limited.
- Spot 109.52
- USDJPY rose 0.3% to 109.54 earlier, gaining for the first time in 5 days after to US national security officials said nuclear war with North Korea wasn’t imminent.
- 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 1.3014
- GBPUSD continues to maintain above the 1.3000 handle, recovering back above it from its earlier session low.
- Sterling bulls have supported the 1.3000 level for 4 consecutive sessions; a move back up to the 1.3200 handle is expected.
- Over a longer-term, the key support remains at 1.2800 while the important resistance target is at 1.3450.