Asian equities were mixed, while emerging market currencies fell amid speculation Fed Chair Yellen will send a hawkish signal when she speaks on Friday at a gathering of central bankers. The US dollar strengthened against most peers. Oil fell back below $48/bbl while gold struggles to hold above $1,340/Oz.
- New home sales in July jumped 12.4% from a month earlier to a seasonally adjusted 654,000, the highest level since Oct 2007; economists were predicting a 2.0% drop to 580,000.
- The Markit Us Manufacturing PMI in August dropped to 52.1 from 52.9, missing the 62.6 expected.
- According to details released by the Fed yesterday, 8 out of 12 regional Fed banks sought last month to increase the rate on direct loans from the Fed to 1.25% from 1%, possibly signalling a growing support for a hike in the main policy rate.
- Dallas Fed President Robert Kaplan told Nikkei newspaper a rate hike would be warranted if jobs trend continues; nonfarm payrolls will be reported on 2nd
- The benchmark 10yr Treasury yield was little changed at 1.55%, as most Treasuries traded in a tight range.
- The dollar pared earlier weakness to end last night’s session slightly higher, as the Bloomberg Spot Dollar Index, which tracks the greenback against 10 major peers, advanced 0.1%. Dollar strength has filtered into Asian trade this morning with the gauge climbing a further 0.2%.
- Fed funds futures ended Tuesday showing a 54% chance of a US rate hike by December, up from 51% on Monday.
- The S&P 500 Index tested its all-time high last night, before paring some of its gains to close 0.2% higher.
- Already struggling with sluggish growth and a banking crisis, Italy is heading for a referendum which could occur as soon as in October, as Prime Minister Matteo Renzi attempts to overhaul the constitution. Renzi has pledged to resign if he loses the referendum.
- The South African rand slumped as much as 3.6% following a report that police had ordered Finance Minister Gordhan to report to its offices on Thursday, raising concern the National Treasury chief may be replaced.
- The Financial Times reported that China is close to launching a credit default swap market. According to the report, 41 companies defaulted as of mid-August on 24 billion yuan worth of bonds since the start of the year; there has also been more than 1000 ratings downgrades over the past 2 months.
- Headline inflation remained negative for the 21st straight month, falling 0.7% year-on-year and 0.3% month-on-month in July, missing estimates of -0.5% and 0.1% respectively.
- Core inflation, however, rose 1.0% from a year earlier, matching expectations, and has been gaining since the recent low of 0.2% in Nov 2015.
- Headline inflation was weighed down by car and accommodation costs, as well as low oil prices.
- Spot gold was mostly steady earlier today but continues to struggle to trade above the $1,340/Oz handle.
- The precious metal is likely to remain between its support at $1,300/Oz and resistance at $1,360/Oz for the rest of the week, at least until Yellen’s speech at Jackson Hole on Friday.
- Silver for immediate delivery was steady as well and continues to fluctuate around its $19/Oz price level.
- Crude oil futures expiring in September rose 1.5% to settle at $48.10/bbl after Reuters reported that Iran is sending “positive signals” that it may support joint action to bolster the oil market.
- Bears took over in Asian trade, with oil futures slipping 1.3% earlier today, as government data showed US crude inventories increased by 4.46 million barrels last week.
- Spot 1.3531
- USDSGD pared previous day’s losses to rise 0.3% to 1.3534.
- A note from UOB stated that core inflation has been trending higher over the past few months, and expects MAS to adopt a wait-and-see approach at its October policy review.
- Spot 0.7605
- The Aussie dollar reversed its previous day’s gains, and was 0.6% weaker at 0.7601 to the US dollar earlier today.
- The 0.7600 handle has been resilient over the past 2 weeks and should provide some support.
- Spot 1.2931
- USDCAD recovered from previous day’s declines, rising 0.2% to 1.2933.
- The currency pair looks likely to remain capped at the 1.3000 resistance level and supported at above the 1.2800 handle for the near term.
- Spot 6.6644
- The PBOC set its fixing rate 0.25% stronger at 6.6420 against the dollar, the most in a week.
- USDCNH rose 0.1% to 6.6657 earlier, as it continues to threaten to break above the 6.6742 resistance level.
- Spot 100.36
- USDJPY continues to be supported at the 100 support, and any major moves in either direction should be limited prior to Yellen’s speech on Friday.
- Spot 1.3183
- GBPUSD maintained near 2 week highs around the 1.3200 handle.
- From a technical perspective, a head-and-shoulders pattern has formed over the past 2 months since Brexit, with the currency pair being consistently capped below the neckline over the period. A break above it could signal a possible reversal.