August 19, 2016

Daily Observations:

Most Asian stock benchmarks drifted lower Friday, despite crude oil entering a bull market and maintaining above $48/bbl. The dollar strengthened, paring overnight losses, while most Asian currencies weakened. Investors now turn their attention towards next week’s key speech by Fed Chair Janet Yellen at Jackson Hole on 26th Aug.

US:

  • New York Fed President William Dudley said strong jobs reports in the past 2 months reinforce his view that labor market conditions continue to improve. His colleague, San Francisco Fed President John Williams announced that he’s for hiking soon and September, like all meetings, is “in play”.
  • Ex-Fed Chairman Alan Greenspan predicted that interest rates will soon rise rapidly and that high inflation and stagnant growth like ahead.
  • Jobless claims last week was steady, falling to 262,000 from 266,000 the week before and lesser than the estimated 265,000.
  • The greenback remained near its weakest levels in more than 3 months, as the probability of a US rate hike by year-end slipped to 47%, according to Bloomberg Fed funds futures data.
  • The outlook was also felt in the bond market as most Treasury yields fell; benchmark 10yr yields fell 1bp to 1.54%.
  • The S&P 500 Index rose 0.2% to close near record-highs, led by a rally in energy shares as crude oil entered a bull market.

Europe:

  • Minutes for the ECB’s July meeting indicated that officials “widely” agreed that their immediate reaction to the outcome of Brexit shouldn’t fuel excessive speculation about more stimulus, in line with analysts’ expectations that the governing council will keep its loose monetary policy in place for longer when it meets on 8th

UK:

  • Retail sales in July were positive; ex auto-fuel, sales grew 1.5% month-on-month and 5.4% year-on-year, beating estimates of 0.3% and 3.9% respectively.
  • Warmer weather was said to have influenced a jump in food and drink sales, while sterling’s weakness in July also helped foreign purchases of luxury goods.

Australia:

  • Five Australian banks’ outlook were revised to negative by Moody’s; the banks include ANZ Group, Commonwealth Bank of Australia, National Australia Bank, Westpac Banking Corp and Members Equity Bank.
  • The ratings agency cited a more challenging operating environment for Australian banks for the rest of 2016 and beyond could lead to deterioration of profit growth and asset quality.

Singapore:

  • Singaporean companies struggling to meet debt obligations following oil’s recent weakness may get more support from the government if the economy deteriorates further, according to global auditing firm EY. UBS Group’s wealth management unit warned more defaults are possible.

Precious Metals:

  • Spot gold fell 0.3% to $1,345.80/Oz following rather John Williams’ rather-hawkish comments that the economy is strong enough to warrant an increase in interest rates soon.
  • Gold continues to consolidate between the $1,340 and $1,360 levels; it looks poised for a strong break-out in either direction, with either the $1,400 or $1,300 levels being possible targets.
  • Spot silver dropped 0.9% to $19.5678/Oz. A break below the key support level of $19.2210/Oz might result in silver dropping back to $18.5/Oz.

Oil:

  • WTI futures expiring in September rallied 3.1% to settle at $48.22/bbl, posting its longest rally in more than 2 months.
  • It has entered a bull market, gaining 22.1% from its close of $39.51/bbl on 2nd
  • Russian Energy Minister Alexander Novak said the nation was open to discussing a production freeze after his Saudi Arabian counterpart said informal talks next month may lead to action to stabilize the market.

 

USDSGD:

  • Spot 1.3437
  • USDSGD continues to be supported by its 1.3400 support, and was 0.1% higher at 1.3430, rebounding sharply after dipping below 1.3400 last night.

 

AUDUSD:

  • Spot 0.7634
  • AUDUSD fell back below the 0.7700 handle and was 0.7% lower at 0.7636 earlier today.
  • According to Bloomberg, the Aussie dollar sell-off was due to Moody’s revising Australian banks’ outlooks to negative.

 

USDCAD:

  • Spot 1.2811
  • USDCAD pared back most of last night’s declines to recover back above the 1.2800 level.
  • According to a Bloomberg strategist, should tonight’s retail sales fall in line with expectations, USDCAD should face renewed downward pressure which would in turn increase burden on the BOC to further ease monetary policy towards the year end.

 

USDCNH:

  • Spot 6.6507
  • The PBOC sets its fixing rate 0.09% weaker at 6.6211 against the dollar.
  • USDCNH was 0.2% higher at the 6.6500 handle after it was reported this morning that China is facing increasing pressure to ease monetary policy as domestic economic pressures are “relatively large” and as other countries lower interest rates.

 

USDJPY:

  • Spot 100.28
  • USDJPY continues to be supported at the key 100 support, hovering above the psychological level for the fourth consecutive session.

 

GBPUSD:

  • Spot 1.3134
  • GBPUSD pared back some of yesterday’s 1.1% rally, falling 0.2% to 1.3127 this morning.
  • The 1.3100 is likely to provide immediate term support.
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