Spot values at a glance:
European stocks slipped after a mixed Asian session, while government bonds followed Treasuries higher as investors continued to digest the reduced odds of another US interest-rate hike later this year. The US dollar maintained near overnight lows while gold neared a 2-month high.
- Federal Reserve officials engaged in a detailed debate about inflation while keeping the door open for a September announcement on the timing of balance-sheet reductions, according to minutes from their policy meeting in July released last night.
- The minutes showed a majority of Federal Open Market Committee participants sticking with a forecast that inflation would gradually rise to their 2% target over the medium term. However, “many” saw some “likelihood that inflation might remain below 2% for longer than they currently expected”, while “several indicated that the risks to the inflation outlook could be tilted to the downside”.
- There was also a group of “some other” participants who cautioned that easy financial conditions and tight labour markets could result in an “overshooting” of the inflation target that could be costly to reverse. They “cautioned” against “a delay in gradually removing policy accommodation”.
- The minutes didn’t specify when the Fed would begin shrinking its balance sheet this year. “Although several participants were prepared to announce a starting date for the program at the current meeting, most preferred to defer that decision until an upcoming meeting, next scheduled for Sep. 19-20.
- The US dollar and Treasury yields extended declines following the release of the Fed’s minutes. Both had already declined earlier in the day on the news that US President Donald Trump was ending his advisory business councils amid a mass exodus of executives.
- Trump abolished the advisory groups instead of pressuring executives to stay, only a day after he had labelled the growing number of CEOs quitting his business council to protest his response to a white-supremacist rally that turned violent as “grandstanders”. His announcement came within an hour of reports that one of the groups, a forum of top finance and business executive, was planning to disband.
- The Bloomberg Dollar Spot Index declined 0.5% overnight and again this morning by as much as 0.2%. The Dollar Index reversed Tuesday’s gains to slip back below 93.50 earlier.
- The benchmark 10yr Treasury yield rose by 2bp to 2.24% earlier today, following its overnight fall of 5bps to 2.22%.
- The odds of another rate hike before year-end dropped to 36% from 40% Tuesday, according to data compiled by Bloomberg.
- US equities edged higher, with the Dow Jones Industrial Average (+0.12%) reclaiming its psychological 22,000 mark. The S&P 500 Index added 0.14%, with materials stocks leading the way. The Nasdaq Composite advanced 0.19%.
- For the time being, stock investors are choosing to put their faith in strong earnings underpinning high equity valuations rather than the political instability plaguing Washington. Profits in the S&P 500 just posted 2 straight quarters of double-digit growth for the first time since 2011. Although valuations stand at levels not seen since the dot-com era, stocks are cheap relative to bonds with yields hovering near record lows, according to a Bloomberg news report.
- Average weekly earnings in June rose 2.1% from a year ago, more than the 1.9% in the month prior and exceeding the 1.8% median estimate. The ILO unemployment rate slipped to 4.4%, from 4.5% in May.
- Jobless claims in July fell 4,200, while employment change in June was 125,000, bettering the expected 97,000.
- Exports in July rose 13.4% year-on-year, accelerating from June’s gain of 9.7% and better than the 13.2% expected. Imports over the same period advanced 16.3%, lagging the median estimate of 17.1% but improving upon the prior month’s rise of 15.5%.
- China’s 3 largest internet companies – Baidu Inc., Alibaba Group Holding Ltd. and Tencent Holdings Ltd., are growing their share of a global digital advertising market now dominated by Google and Facebook Inc. By 2019, the trio could account for almost a fifth of spending, though that would still lag Google’s projected 32%, according to consultancy eMarketer. Of the 3, Tencent’s share is growing fastest and is expected to overtake Baidu’s, as ads on its WeChat all-purpose messaging service helped drive a 70% profit surge in its latest quarter.
- 27,900 more jobs were added in July, more than the 20,000 forecasted and improving upon June’s addition of 20,000 as well. Full-time jobs fell by 20,300, a sharp contrast from the 69,300 gain in June. Conversely, part-time employment rose by 48,200, reversing a 49,300 drop in June.
- The jobless rate fell to 5.6%, from 5.7% in the month prior, and matched expectations. The participation rate inched up to 65.1%, from 65.0%.
- The data provide ammunition to both hawks and doves. For the Reserve Bank of Australia, rising employment chimes with its confidence of a strengthening labour market boosting income growth and supporting consumption. For doves, the slump in full-time employment and monthly hours worked supports the view of a soft underbelly in a jobs market looking sound at the headline level.
- Non-oil domestic exports in July rose 8.5% year-on-year, slower than the 8.8% gain in June and less than the median estimate of 9.1%.
- Electronic exports rose 16.3% over the same period, jumping from the 5.4% in June and surpassing the 15.0% estimate.
- Spot gold rallied by as much as 1.5% to $1,289.46/Oz to erase most of its decline over the past 3 sessions, following Fed minutes which showed lingering concern over low inflation and thus curbing speculation of further interest-rate hikes.
- The short-term support at $1,270/Oz looks to hold for the time-being, as some consolidation is expected between said level and the psychological $1,300/Oz resistance.
- The precious metal has recently 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.
- Silver for immediate delivery rallied as well, jumping 3.0% to $17.1829/Oz earlier.
- Zinc rallied as prices surged above $3,000/mt Wednesday for the first time in almost a decade in a broad rally for metals. Aluminium approached a three-year high, adding momentum to a rally fuelled by bets on tightening supplies and robust demand. Nickel, copper and lead also advanced as shares of miners jumped.
- An index of base metals climbed to a 2-year high last week amid better-than-expected demand in China and a weakening dollar. China is also stepping up efforts to shut illegal aluminium and steel plants to cut emissions and excess capacity.
- Crude oil futures pared some of its overnight decline, although prices still remain capped around the $47/bbl handle. Futures fell 1.6% to $46.78/bbl in New York as investors weigh expanding US crude output against an extended decline in stockpiles during a period of strong seasonal demand.
- Production had its biggest weekly gain since the end of June, climbing to the highest level since July 2015, according to Energy Information Administration data Wednesday. The increase offset a 9-million-barrel decline in crude stockpiles, the biggest drop since September.
- Bitcoin’s meteoric rise is leading some investors to argue that bitcoin is a better hedge against inflation and turmoil than gold, according to Morgan Stanley. Tom Price, a London-based equity strategist, said he’s been fielding more cryptocurrency questions after prices recently soared past US$4,000 a bitcoin, a fivefold increase from November 2016. Both bitcoin and gold offer similar benefits as a store of value, such as being fungible, durable, portable, divisible and scarce, but it’s too soon to call bitcoin a superior investment, he says.
- Japan’s Fisco Ltd. is experimenting with selling bonds denominated in bitcoins, figuring that the digital currency will eventually become a legally recognized financial asset in Japan and help boost its business. A unit of the Tokyo-based financial information provider issued 3yr-debt worth 200 bitcoins to another firm in the Fisco group on Aug. 10. One goal of the sale was to test the bonds’ potential to become a useful fundraising tool, the company said.
- Spot 1.3635
- USDSGD erased gains from the past 2 sessions, falling 0.5% to 1.3618 earlier following broad USD weakness today.
- The key resistance remains around the 1.3700 handle.
- Spot 0.7947
- AUDUSD rallied 1.2% to 0.7950, a 1-week high, after July employment data beat estimates and iron ore prices rallied.
- From a technical perspective, strong support above the 0.7800 handle exhibited earlier this week should lead to a retesting of the 0.8000 psychological level.
- Spot 1.2608
- USDCAD declined 1.1% to 1.2601, retracing sharply from near its 1.2800 resistance.
- The previous resistance-turned-support of 1.2575 may be tested soon.
- Spot 6.6800
- The PBOC strengthened its reference rate for first time in 3 days, by 0.10% to 6.6709 per US dollar earlier today.
- USDCNH extinguished its gains from the past 3 sessions, falling 0.4% to 6.6760 earlier on the back of USD weakness.
- Following a sharp rejection of the 6.7000 handle, USDCNH looks on course to retest its 11-month low of 6.6579 made last week.
- Spot 109.96
- USDJPY retreated from the 111 handle, falling 1.0% to 109.67 earlier on weakening expectations for the Fed’s third rate increase later this year.
- The key support remains at the 108 handle, last tested in April. The pair has largely ranged between 109 and 115 for most part of the last 5 months. A breakout in either direction could lead to a sustained move that could last until the end of the year.
- Spot 1.2888
- GBPUSD looks set to snap a 3-day losing streak, rising by as much as 0.3% to 1.2909 earlier today following yesterday’s better-than-expected jobs data in the UK.
- The next key support below resides around the 1.2800 handle.