Spot values at a glance:
European stocks followed most Asian equities higher as tensions surrounding North Korea eased. Safe haven assets such as the yen and gold retreated from overnight highs. The US dollar gained sharply against most currencies.
- US President Donald Trump said that “all options” are under consideration in response to North Korea firing an unidentified ballistic missile over Japan on Tuesday as Kim Jong Un’s latest provocation rattled markets.
- Trump and Japanese Prime Minister Shinzo Abe plan to call for an international embargo on oil exports to North Korea, according to Nikkei News.
- Japan called Kim Jon Un’s latest provocation an “unprecedented, grave and serious threat”, and asked the UN Security Council to hold an emergency meeting.
- Despite rising geopolitical tensions in the Korean peninsula, investors have reverted to an old playbook, where bad news becomes good news for markets as US stocks staged a big comeback from early losses to end higher. The benchmark S&P 500 Index eked out a 0.08% gain while the tech-heavy Nasdaq Composite rallied late on close 0.30% higher.
- According to a Bloomberg news report, although logic might dictate that investors flee from equities, the broader landscape may actually be supportive of stocks. A weaker US dollar is making US exports more competitive, while uncertainties in Washington coupled with geopolitical risks could cause the Fed to slow or pause the path of interest-rate hikes.
- 10yr US Treasury yields hit their lowest level since November 10 amid a flight to safety but reversed course to fall less than 2bp by the close at 2.13%; the yield gained a further 2bps to 2.15% earlier today. A dearth of inflation or pro-growth fiscal policies has caused investors to sour on the prospect of aggressive tightening from the Fed.
- Odds of an interest rate increase in December are less than one in three, according to Bloomberg pricing data; a little more than half a hike is priced in for calendar year 2018.
- The US dollar rebounded from its lowest levels since Jan 2015. The Bloomberg Dollar Spot Index ended 0.2% higher, while the Dollar Index erased losses to close above the key 92 support handle.
- A Goldman Sachs fund manager said in an interview with Bloomberg TV going long the US dollar is “very, very attractive right now”.
- US consumer confidence rose to the highest level in 5 months, according to Conference Board Consumer Confidence gauge, which rose to 122.9 and exceeded the 120.7 forecast.
- Consumer credit cooled slightly in July amid concern among Bank of England officials that the market may be entering a bubble. Unsecured lending rose 9.8% from a year earlier, from 10% in June, the BOE said on Wednesday. It grew 1.2 billion pounds on the month. Meanwhile lending to non-financial businesses jumped to a record.
- The BOE announced this month that it will end its Term Funding Scheme, introduced last August as part of a post-Brexit stimulus package to encourage banks to continue lending, in February 2018. The program was designed to lower the cost of debt for banks, which in theory is passed on to customers who spend more to keep the economy ticking over in uncertain times.
- Retail sales in July rose 1.1% month-on-month and 1.9% year-on-year, beating median estimates of 0.3% and 1.0% respectively.
- Regulatory curbs aimed at slowing the growth in riskier property lending in Australia are starting to bite. The proportion of new lending to interest-only borrowers fell to the lowest level in more than 8 years in June, according to data from the Australian Prudential Regulation Authority. The regulator in March sought to cap such loans, traditionally favoured by property investors, at 30% of total new residential mortgages.
- Spot gold pared most of Monday’s rally, falling 1.1% to $1,305.11/Oz overnight. Gold had risen to its highest this year earlier this week after North Korea fired a ballistic missile over Japan, boosting haven demand and extending a rally fuelled by declines in the dollar.
- Having broken above its key $1,300/Oz level, and thus confirming its breakout of its multiyear downtrend, the bias has now shifted strongly to the upside for the yellow metal with the next resistance target coming in at $1,375/Oz. The region around $1,300/Oz should now act as a key support level.
- According to Mohamed El-Erian, gold is acting less of a safe haven asset these days. Firstly, due to the prolonged pursuit of unconventional measures by central banks which has helped meaningfully decouple asset prices from underlying fundamentals. As such, historically based models will tend to overestimate the reaction of asset prices to heightened geopolitical tensions such as the fall in risk assets and the rise in safe haven ones. Secondly, a portion of the traditional buyer interest in gold has been diverted to the growing markets for cryptocurrencies, which are also benefiting from a general increase in demand. As such, the returns to investors there have been significantly greater, sucking in even more funds.
- Silver for immediate delivery pared its prior session gain as well, declining 1.2% to $17.2813/Oz earlier today.
- Crude oil futures declined 0.3%, and a further 0.6% to a session-low of $46.18/bbl earlier, with tropical storm Harvey continuing to halt 20% of America’s refining capacity and thus dampening crude demand in the world’s largest user.
- Harvey drifted into the Gulf of Mexico after making landfall Friday and is set to regain strength before crashing ashore Wednesday on the Texas-Louisiana border which could force the nation’s biggest refinery to shut down.
- Spot 1.3575
- USDSGD reversed sharply from an 11-month low near the 1.3500 handle, gaining 0.2% to 1.3578 earlier amid a strengthening US dollar.
- Spot 0.7957
- AUDUSD slipped 0.4% to 0.7943, retreating from the 0.8000 handle tested overnight on the back of a stronger US dollar today.
- The pair has been recently bound between the support and resistance levels of 0.7800 and 0.8000 respectively.
- Spot 1.2536
- USDCAD snapped a 6-day losing streak, advancing 0.7% to 1.2550.
- The pair’s recovery was supported by disappointing Canadian data, showing a larger than expected drop in industrial production price and continuous drop in raw material price index. Furthermore, the recovery received an additional boost from a broad based greenback recovery today.
- A retest of the 1.2400 support is possible while the 1.2800 resistance target remains.
- Spot 6.5916
- The PBOC strengthened its reference rate for a third consecutive day, by 0.29% to 6.6102 per US dollar earlier today, its strongest fixing in more than a year.
- USDCNH looks set to slide for a fifth straight day after slipping 0.3% to 6.5837.
- Spot 109.91
- USDJPY rose by as much as 1.5% to 110.17 earlier, but faded its gain early into the European session below the key 110 mark despite a strong US dollar rally.
- 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.
- Spot 1.2925
- GBPUSD an earlier declined by as much as 0.4% to 1.2896 as the pound remained vulnerable to Brexit-related headlines.
- The currency had failed to gain support after data earlier showed that home-loan approvals in July rose to the highest level since March 2016. A separate report showed consumer credit rose less than forecast last month.
- Sterling retreated from a 2-week high after the UK asked the EU for more time to negotiate the terms of separation. PM May may offer a financial payment as part of a wider package in return for a transition period, according to the Times of London.