Asian stocks extended their drop as oil’s selloff revived concerns over global growth while Japan’s fiscal stimulus package underwhelmed most investors. Higher yielding currencies retreated while the yen and gold climbed as investors sought tradition safe haven assets. The Bank of England is projected to cut rates Thursday.
- Personal spending in June rose 0.4% from a month earlier, matching May’s gain and exceeding forecasts of a 0.3% rise. Personal income however rose 0.2% month-on-month, a touch lower than the 0.3% gain expected. The personal savings rate was 5.3%, the lowest since Mar 2015, down from 5.5% in May.
- The PCE deflator, the Fed’s preferred gauge of inflation, crept up 0.1% over the same period, lower than the 0.2% anticipated.
- The S&P 500 Index notched its first back-to-back daily declines post-Brexit, falling 0.6% while the Dow Jones Industrial Average’s losing streak extended to seven days.
- The US dollar extended declines, as the Bloomberg Spot Dollar Index fell 0.6% to its weakest levels in more than month.
- Treasuries fell as well, though less than bunds and JGBs; US 10-year yields rose 3bps to 1.56%.
- Bill Gross reiterated his warning on government debt after yields from the US to Australia touched all-time lows the past month. The danger of the unprecedented rally, he believes, is that any reversal will be painful for investors.
- The Fed’s Dallas President Kaplan said that US nonfarm payrolls above 125,000 for July would signal slack in the economy is waning; according to Bloomberg the estimated figure is 180,000.
- Manufacturing PMI for July ticked slightly higher to 51.9, from 51.8 in June.
- The BOJ announced 4.6 trillion yen in extra spending for the current fiscal year and just under 3 trillion yen further out, accounting for about a quarter of the total amount Prime Minister Abe flagged in a speech last week.
- The package will also include cash handouts of 15,000 yen to people on low incomes, NHK news reported.
- Investors found little to cheer from the announcement, after some optimism was spurred from the headline figure for the overall package last week. The yen advanced 1.1% to 100.68 against the dollar last night.
- Japan’s 10-year yield, which has surged this week, is within 6 bps of turning positive; it would be the first time since March.
- Caixin services PMI in July fell to 51.7 from 52.7 previously, while the composite PMI rose to 51.9 from 50.3; no estimates were provided.
- As expected, the RBA cut its benchmark rate to a record low of 1.50%, from 1.75%.
- The statement accompanying the decision was little changed from the previous meeting, which left policy unchanged. It observed that the underlying pace of growth in China appears to be moderating, while maintained its previous caution about a stronger AUD complicating the recovery.
- PMI for July fell to 49.3, from 49.6 the previous month and was worse than the 49.5 expected.
- Spot gold climbed as much as 0.7% higher to $1,367.34/Oz following increased safe haven demand as investors shunned riskier assets.
- The 2016 high of $1,375.34/Oz acts as the main resistance, and is likely to be tested in the near future.
- Silver for immediate delivery pared some gains from its positive streak over the past 4 sessions, falling 0.6% to $20.5842/Oz earlier today.
- Both precious metals continue to remain bullish over the long term, having recently broke above their respective 200-week moving averages for the first time since 2013.
- WTI oil futures expiring in September extended loses beyond the $40/bbl handle, closing 1.4% lower at $39.51/bbl.
- American crude and gasoline inventories are expected to have declined last week and are likely to remain around their highest seasonal level in at least 20 years.
- Nigeria has resumed payments to former militants as the government seeks to establish a cease-fire after attacks have cut the country’s oil output to the least since 1989.
- Factions in Libya have reached a deal to re-open oil terminals.
- Spot 1.3405
- USDSGD rebounded back above the 1.3400 level after touching a 6-week low of 1.3358 last night.
- The 1.3400 level continues to be a strong support level.
- Spot 0.7598
- AUDUSD fell as much as 1.1% to 0.7491, following yesterday’s expected rate cut, but then erased all those losses to climb 0.9% higher to 0.7638 last night.
- The abrupt turnaround could partly be attributed to overnight dollar weakness, as well as the fact that yesterday’s rate cut had already been priced in prior to the decision announcement.
- Spot 1.3121
- USDCAD has largely been seesawing between the 1.3000 and 1.3100 handles over the past couple of days, as a tussle between a weaker greenback and declining crude oil prices continues to seek control over currency pair.
- Crude oil declining below $40/bbl last night has driven USDCAD 0.4% higher back towards the top end of its range over the past few days.
- Spot 6.6358
- The PBOC raised its reference rate the most in six weeks, by 0.39% to 6.6195 versus the US dollar.
- USDCNH was 0.1% lower at 6.6345 earlier today, after paring back some of its overnight drop.
- Spot 1.3321
- GBPUSD rose 1.0% to 1.3366 despite swaps prices reflecting a 98% chance of a BOE rate cut tomorrow.
- The currency pair’s rise comes on the back of a broadly weaker US dollar overnight; in addition, some investors see a risk of policy makers underwhelming a market that’s pricing in the near certainty of a rate reduction.