August 24, 2016

Daily Observations:

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.

US:

  • 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.

Italy:

  • 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.

South Africa:

  • 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.

China:

  • 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.

Singapore:

  • 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.

Precious Metals:

  • 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.

Oil:

  • 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.

USDSGD:

  • 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.

 

AUDUSD:

  • 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.

 

USDCAD:

  • 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.

 

USDCNH:

  • 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.

 

USDJPY:

  • 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.

 

GBPUSD:

  • 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.
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