August 30, 2016

Daily Observations:

Most Asian stocks rose, following gains in US shares as investors focus on evidence of strength in the world’s largest economy, following a positive consumer spending report last night. Government bonds, precious metals and crude oil rebounded as well.

US:

  • Core PCE, the Fed’s favoured inflation gauge, for last month rose 0.1% month-on-month and 1.6% year-on-year, maintain previous month’s pace; economists were expecting 0.1% and 1.5% rises respectively.
  • Personal spending and income matched expectations, coming in at 0.3% and 0.4% respectively. In addition, previous figures were revised higher across the board.
  • According to Bloomberg pricing data, the odds of a Fed hike in September fell from 42% on Friday to 32%, mirroring a decline in treasury yields and a slightly higher equity market.
  • Treasuries surged, paring or erasing Jackson Hole losses; benchmark 10yr yields shed 7bps to 1.56%.
  • The yield spread between 30-year bonds and 2-year notes shrank to the least since 2007, indicating traders are betting on higher borrowing costs.
  • The US dollar edged higher earlier today, with the Bloomberg Spot Dollar Index climbing 0.2%; the gauge had advanced 0.8% on Friday and a further 0.1% last night.
  • The S&P 500 Index rebounded to close 0.5% higher led by good consumer spending reports, halting its longest run of losses since June; financial stocks led gainers following last Friday’s hawkish comments from the Fed.

Japan:

  • Retail sales in July rose 1.4% from a month earlier, beating expectations of a 0.8% rise.
  • Retail trade last month fell less than expected, by 0.2% instead of the 0.9% forecasted.
  • July jobless rate improved to 3.0% from 3.1% in June.

Australia:

  • Building approvals in July jumped 11.3% month-on-month, reversing last month’s decline of 3.7% and beating expectations of a 1.1% rise.

Precious Metals:

  • Spot gold was 0.4% higher earlier today at $1,325.59/Oz, although the precious metal is clearly on a downside bias. The previous support of $1,330/Oz now acts as a resistance level, while to the downside, the next area of support should come in between $1,300/Oz and $1,310/Oz.
  • Silver, too, seems to have lost a little shine lately; spot silver continues to be capped at the $19.00/Oz resistance.

 

USDSGD:

  • Spot 1.3613
  • USDSGD remains largely unchanged as it continues to maintain above the 1.3600 handle.

 

AUDUSD:

  • Spot 0.7565
  • AUDUSD pared its previous day’s losses to rise 0.3% to 0.7582.
  • The pullback seems to be a correction though, as for it to be a reversal, a rebound back above 0.7600 is warranted.
  • The apparent willingness of the Fed to hike rates means incoming RBA Governor Philip Lowe may have the ability to hold onto the policy ammunition that his predecessor bequeaths him.

 

USDCAD:

  • Spot 1.3028
  • USDCAD extended its recent rise, advancing 0.3% to a high of 1.3048 last night.
  • Tomorrow night’s GDP release should shed more light on the economy; analysts are expecting a quarterly annualized contraction of 1.5%, more than the BOC’s most recent forecast of -1.0%, which could lead the central bank to cut is full-year growth target rate and weaken the Canadian dollar further.

 

USDCNH:

  • Spot 6.6894
  • The PBOC strengthened its fixing by 0.1% to 6.6812 against the dollar.
  • USDCNH was 0.1% lower at 6.6859 after testing the 6.7000 level yesterday.
  • Derivative markets are pointing to renewed bets on yuan depreciation after this weekend’s G-20 summit in China; speculation is rife that the PBOC would let the yuan fall between the G-20 gathering and the currency’s entry into the IMF’s SDR on Oct 1st, especially with the chances of a Fed hike in September increasing.

 

USDJPY:

  • Spot 102.13
  • The yen held losses against the dollar at the 102 level following its 2% advance over the past 3 sessions.

 

GBPUSD:

  • Spot 1.3083
  • After falling for 3 straight days, GBPUSD remained largely unchanged below the 1.3100 handle.
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