August 2, 2017

Daily Observations:

Asian technology stocks climbed together with US equity-index futures after positive earnings from Apple Inc. last night buoyed sentiment within the sector. The US dollar extended an overnight rebound, while gold retreated from a 6-week high.

US:

• Consumer spending lost momentum in June and a drop in dividend payments caused incomes to stagnate, signaling the US economy may get less help from households this quarter, Commerce Department figures showed Tuesday.
• Personal income in June was unchanged from a month ago, slowing from a 0.3% increase in May, and missing the consensus estimate of 0.4%.
• Personal spending over the same period matched expectations by rising 0.1%, but also slowed from May’s gains of 0.2%.
• The Fed’s preferred inflation gauge, the PCE deflator, was unchanged month-on-month and rose 1.4% year-on-year in June, compared to zero growth and a 1.5% rise respectively in the previous month. While exceeding forecasts, the data indicates more time is needed to reach the Fed’s 2% inflation target. The PCE deflator had exceeded policy makers’ target in just one month since April 2012.
• The Markit US manufacturing PMI in July ticked higher to 53.3, from 53.2 in June. However, ISM manufacturing last month slipped to 56.3, from 57.8 in the prior month.
• US auto sales in July signalled enduring softness in the space. The big 3 American automakers posted sales declines that were larger than analysts anticipated, while most foreign automakers managed to exceed expectations.
• Sales at General Motors Co. plunged 15% in its home market in July, the biggest drop in more than a year. Ford Motor Co. reported its biggest sales decline since October and Fiat Chrysler Automobiles NV had its second worst tumble this year.
• The Dow Jones Industrial Average (+0.3%) gained for the fifth straight day, and remains 40 points shy of the 22,000 mark. The S&P 500 (+0.2%) and the Nasdaq Composite (+0.2%) carved out gains as well.
• Shares of Apple Inc. surged more than 6% after-hours following its report of a stellar set of quarterly results, exceeding expectations on the top and bottom lines. More importantly, the firm said it anticipates sales of $49 billion to $52 billion in the three months ending September, a period that is expected to include the launch of a new model of the iPhone.
• With two-thirds of the earnings season done, about 77% of the companies in the S&P 500 Index have beaten their earnings-per-share estimates, according to JPMorgan. According to Bianco Research, there is one caveat though – companies tend to rush out good news early, and the back end of earnings season is when bad news always comes, as companies tend to wait to release disappointing results. In the first quarter, 80% of the first 300 companies in the S&P 500 that reported results beat estimates, but that fell to 73% once all were accounted for.
• The lacklustre auto sales reported last night contributed to a rally in US Treasuries, with investors becoming more concern on how the Fed will reach its inflation target if consumers aren’t spending; the benchmark 10yr Treasury yield slipped 4bps to 2.25% in New York.
• The so-called neutral US interest rate fell in the second quarter by the most since 2010, according to a widely-cited estimate produced by Fed economist Thomas Laubach and San Francisco Fed President John Williams. The theoretical rate known in economic circles as “r-star” – which is adjusted for inflation and would neither stimulate nor restrict an economy growing at trend, declined to -0.22%, from 0.12% in the first quarter, according to Bloomberg News. The Fed’s benchmark rate, adjusted for core inflation, is now -0.35%, which suggests the central bank is nearly at a “neutral” monetary policy setting, according to the model, and adding to speculation that the Fed may be closer to the end of its tightening cycle.
• The US dollar rebounded following a strong ISM number and a rally in equities; the Bloomberg Dollar Spot Index added 0.2% overnight and a further 0.1% in Asia trade earlier.

Canada:

• The Markit Canadian manufacturing PMI gained to 55.5 last month, from 54.7 in June.

UK:

• UK manufacturing growth accelerated for the first time in 3 months in July, bolstered by the strongest jump in export orders in 7 years. A measure of factory output rose to 55.1 from a revised 54.2 in June, according to IHS Markit’s Purchasing Managers’ Index. That exceeds the advance to 54.5 forecast by economists in a Bloomberg survey.

Australia:

• The RBA yesterday kept interest rates unchanged, as expected, and warned a rising currency is expected to subdue inflation and weigh on the outlook for growth and employment.
• “The higher exchange rate is expected to contribute to subdued price pressures in the economy,” Lowe said in his statement, the longest since 2013. “It is also weighing on the outlook for output and employment. An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.”

Precious Metals:

• Spot gold retreated from a 6-week high of $1,274.16/Oz overnight, reversing all of its session’s gains as the precious metal continues to struggle to break above the $1,270/Oz handle. Near-term support may be found around $1,260/Oz, which also coincides with the base of a 3-week uptrend line.
• On a longer-term basis, spot gold is currently testing a key downward multiyear trendline, in play since 2011. An upward move above the $1,280/Oz handle should confirm the break above the trendline and signal the start of a reversal.
• Silver for immediate delivery failed to test the $17/Oz handle, slumping 0.9% to $16.5795/Oz earlier.

Oil

• Crude oil futures expiring in September retreated 1.1% earlier today to $48.64/bbl, following a 2.0% overnight decline as industry data showed US crude stockpiles expanded.
• Inventories rose by 1.8 million barrels last week, the American Petroleum Institute was said to report. Energy Information Administration data later today is expected to show stockpiles decreased for a fifth week.
• OPEC output climbed in July as Libya boosted supply, according to a Bloomberg survey.

USDSGD:

• Spot 1.3600
• USDSGD recovered back above the 1.3600 level earlier, gaining 0.2% to a session-high of 1.3612 following a firmer USD overnight.
• 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 is more likely.

AUDUSD:

• Spot 0.7953
• AUDUSD retreated from its 0.8000 level, falling by as much as 0.5% to 0.7942 earlier today following yesterday’s RBA warning that a rising Aussie dollar is set to subdue inflation and weigh down growth and employment.
• Nonetheless, traders and economists are predicting that, unless the central bank is willing to signal it’s ready to cut rates, the Aussie dollar will continue upon its recent momentum and climb higher towards 0.8500 US dollars, according to a Bloomberg news report.
• On a shorter-term basis, the next resistance target resides at the 2-year high of 0.8164, while to the downside, 0.7875 is expected to provide support.

USDCAD:

• Spot 1.2570
• USDCAD advanced 0.8% to 1.2574 earlier, on the back of a stronger US dollar and an overnight slump in crude oil.
• The pair has been well supported above the 1.2400 handle. A break above 1.2600 and the pair could extend its rebound higher towards the 1.2800 key resistance level. ,

USDCNH:

• Spot 6.7315
• The PBOC weakened its fixing rate for the first time in 3 days, by 0.08% to 6.7205 per US dollar earlier today.
• USDCNH rebounded from its lowest level since October last year, gaining 0.1% to 6.7342.

USDJPY:

• Spot 110.52
• USDJPY rebounded from its 110 support for the second session in a row, reversing an earlier decline and gaining 0.1% to 110.60.
• The pair continues to stabilize following a 3.8% decline over the past 3 weeks; a rebound back to 112 is expected to be likely.
• Further downside should be capped by the base of a rising wedge pattern, established since April, at around 109.50.

GBPUSD:

• Spot 1.3200
• GBPUSD maintained most of Tuesday’s 0.7% gain, holding around the 1.3200 handle despite retreating 0.2% earlier today.
• The next resistance lies around 1.3450, however further upside for the currency pair may be limited given that investors are keeping an eye out for Thursday’s BOE policy decision.