August 25, 2017

Daily Observations:

Apart from indices in Singapore and Sydney, most other Asian indices gained, as investors await comments from central bankers meeting at Jackson Hole and as political wrangling continues in Washington. The US dollar and gold remained little changed, while crude oil gained as a hurricane makes it way towards a US refining hub.

US:

• US President Donald Trump took to the social media platform on Thursday morning in the US to blame other leaders in the Republican party for the debt ceiling “mess”. In a series of posts, the president said he asked Republican leaders, including Senate Majority Leader Mitch McConnell and House Speaker Paul Ryan, to include a measure to raise the US debt ceiling in a popular veterans bill, but that the two leaders decided against it. He wasn’t happy, blaming them for passing on an “easy” solution.
• Moody’s Investors Service said Thursday that if Treasury exhausts the measures it’s using to fund itself and turns to prioritizing debt service over other obligations, the US’s top rating would be safe. On the other hand, Fitch Ratings said Wednesday that such a move might jeopardize the country’s AAA rank. With 2 of the world’s credit rating agencies on divergent views, the debate has gained in urgency with almost a month before the “critical” deadline Treasury Secretary Mnuchin has laid out for addressing the debt limit.
• In overnight economic news, existing home sales in July slipped 1.3% from a month ago, worse off than the median consensus of a 0.5% gain.
• 2 Federal Reserve officials took opposite sides of the central bank’s ongoing debate over how to respond to disappointingly low inflation figures, as policy makers gathered for their annual symposium in Jackson Hole, Wyoming. Kansas City Fed President Esther George said in an interview with Bloomberg Television that if U.S. economic data hold up, there will probably be an opportunity to raise interest rates again in 2017. In a later interview with CNBC, Dallas Fed chief Robert Kaplan said officials should be more patient and wait for signs of renewed inflation before hiking rates again this year.
• US equities and Treasuries edged lower as markets stuck a cautious tone amid political wrangling over the debt ceiling and ahead of central bank speeches in Jackson Hole. The S&P 500 Index slipped 0.21% while the Dow Jones Industrial Average fell 0.13%. The tech-heavy Nasdaq Composite declined 0.11%. US Treasury yields rose; the benchmark 10yr yield rose 2bps to 2.19%
• The US dollar rose slightly, with the Bloomberg Dollar Spot Index rising 0.2% and the Dollar Index gaining 0.1% overnight.

Canada:

• Canada, the world’s largest softwood-lumber exporter, affirmed its willingness to sue the US if trade talks on the homebuilding material fail. The US has “mischaracterized” what Canada has proposed in terms of defined market share, Canada’s Ambassador to the US, David MacNaughton, said. The only qualification Canada wants for defined market share is that the country can supply excess lumber to the US in the event that American suppliers can’t meet domestic demand fully, he added.

UK:

• UK GDP rose 0.3% quarter-on-quarter in the second quarter, matching expectations and failing to improve upon the prior 0.3% growth figure. On a year-on-year basis, GDP was in line with estimates as well, rising 1.7%.
• Private consumption rose 0.1% from 1Q, less than the 0.3% predicted, while government spending rose 0.6%, more than the 0.3% forecasted. Household had registered its weakest reading since 2014, and is a further sign of how support from the consumers is waning.
• UK’s GDP growth last quarter left growth in the first half at its worst since 2012. It’s also the slowest among Group of Seven nations that have reported so far.
  
• The data reinforces the view the economy has moved into a slower growth phase, at a pace well below its average in recent years. The change is partly related to the pound’s drop since the Brexit vote, which has pushed up inflation, while confidence has flagged amid a lack of clarity on the type of deal the UK will agree with the EU.

Japan:

• CPI in July rose 0.4% from a year ago, matching expectations and maintaining a similar pace compared to June. Excluding the effects of fresh food, CPI over the same period rose 0.5%, matching expectations again but accelerating from the prior month’s gain of 0.4%.
• Price increases are still well below the BOJ’s 2% target, even as the economy expands. The BOJ was forced to push back the projected timing of meeting the objective for the sixth time at its July policy meeting, despite years of extraordinary monetary easing. Inflation minus fresh food and energy has been mostly flat. All this means that the BOJ is likely to continue with its stimulus while its counterparts in the US and Europe look to wind back their programs.

China:

• The equity rally propelling global asset values higher this year is once again turning China into the world’s fastest-growing wealth machine. The fortunes of the 40 Chinese billionaires on the Bloomberg Billionaires Index have surged 46.8% since year-end, dominating the wealth gains of all nationalities and sending their combined net worth to $417 billion.

Precious Metals:

• Spot gold was little changed on the day earlier, following its 0.1% decline in its previous session. The precious metal has been trading within a tight range over the past couple of days as investors weigh opposing comments from 2 Fed officials before a much-anticipated speech by Fed Chair Janet Yellen during the annual Jackson Hole gathering in the US.
• The short-term support below at $1,270/Oz looks to hold for the time-being, while the key psychological resistance remains at $1,300/Oz.
• The precious metal has recently broken above a key downward multiyear trendline, in play since 2011. A breach above the $1,300/Oz handle should confirm the breakout and signal the start of a new long-term upward trend.
• Gold has rallied 11% in 2017, compared to a 10% slump in crude oil. That divergence in price may still be going, meaning gold should continue to outperform oil before the 34-month cycle ends, according Bloomberg News citing a study of past trading patterns for the two assets.
• Silver for immediate delivery pared some of its 0.8% decline yesterday, gaining 0.5% earlier this morning to $17.0149/Oz.

Oil

• Crude oil futures pared its previous session’s 2.0% drop, gaining 0.8% to $47.81/bbl earlier today as traders braced for impact from Hurricane Harvey that moved through the Gulf of Mexico towards a US refining hub.
• Gasoline gained as much as 4% as Citigroup Inc. estimates more than 2 million barrels of motor fuel output may be impacted by the storm.

USDSGD:

• Spot 1.3610
• USDSGD inched lower earlier by less than 0.1% to 1.3607, as the currency pair continues to be buoyed above its 1.3600 handle.
• The key resistance lies at the 1.3700 level, a convincing break above may lead to further upside with the next resistance lying at 1.3860. To the downside, a decline back below the 1.3600 handle should lead to a retest of the 10-month low of 1.3543.

AUDUSD:

• Spot 0.7899
• AUDUSD was little changed on the day, holding around the 0.7900 handle ahead of a global central bankers’ convention at Jackson Hole this weekend.
• The pair has been recently bound between the support and resistance levels of 0.7800 and 0.8000 respectively.

USDCAD:

• Spot 1.2513
• USDCAD slipped 0.2% to 1.2506 earlier today, extending its recent move lower for a fourth consecutive day.
• USDCAD fell 0.3% to 1.2550 this morning, reversing Monday’s gain and registering a fresh 2-week low.
• The pair has failed to recover back above the 1.2600 handle, and a retest of the 1.2400 support is possible. The 1.2800 resistance target remains.

USDCNH:

• Spot 6.6618
• The PBOC weakened its reference rate by 0.108% to 6.6579 per US dollar earlier today.
• USDCNH was little changed today, following its close of 6.6608 in the previous session, the lowest close for the currency pair since last September.

USDJPY:

• Spot 109.65
• USDJPY gained 0.4% to 109.77 earlier, with the yen heading for its worst week in almost 2 months against the dollar as traders await clues for the pace of monetary tightening from central bankers at Jackson Hole and tensions eased on the Korean peninsula.
• 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.

GBPUSD:

• Spot 1.2808
• GBPUSD fell by as much as 0.2% last night to 1.2791, but has since recovered back above the 1.2800 handle, where a key support level lies at.