August 31, 2016

Daily Observations:

Mining stocks led declines among Asian equities as a resurgent dollar put gold and industrial metals on track for their first monthly losses since May. Treasuries are headed for their worst month since June 2015 after recent hawkish comments from Fed officials strengthened the case of a rate hike by year’s end. Japan equities rose on the back of a weaker yen.

US:

  • Consumer confidence rose unexpectedly from 97.3 in July to 101.1 in August, the highest level in a year and beating estimates of 97.0. The rise in confidence was brought about by an optimism in jobs, which may bode well for non-farm payrolls this Friday.
  • In an interview with Bloomberg, Fed Vice-Chairman Stanley Fischer said the committee will “choose the pace” of rate hikes which will be determined by incoming economic data. He also expressed optimism that productivity growth will rebound.
  • The dollar rose overnight against all G-10 peers as traders pared short positions ahead of Friday’s nonfarm payrolls. The Bloomberg Spot Dollar Index rose 0.6% to rise to almost 1-month highs.
  • The benchmark 10yr Treasury yield rose 1bp to 1.57%, after dropping 7bps on Monday.
  • Comments from Fed officials last Friday have split the market, with Morgan Stanley predicting the Fed will forego raising rates next month, and Goldman Sachs forecasting the opposite.
  • The S&P 500 Index slipped 0.2% amid light volume; utility shares led decliners.

Japan:

  • Industrial production in July missed expectations, stagnating on a month-on-month basis and falling 3.8% year-on-year; economists’ forecasts were a 0.8% rise and a 3.0% drop respectively.

Precious Metals:

  • Spot gold fell 0.8% to a low of $1,309.34/Oz last night, its lowest level in almost 2 months. Gold is headed for its first monthly decline since May as investors being to price in the prospect of higher interest rates in the US by the end of the year. Holdings in gold ETFs rose about 25 metric tons this month, the smallest gain in 2016.
  • Silver for immediate delivery dropped 1.2% to $18.5472/Oz, but still remained above its most recent low of $18.3990/Oz.

Oil:

  • Crude oil futures expiring in October fell 1.3% to $46.35/bbl, the lowest since Aug 15th.
  • A government report is expected to show that crude supplies climbed by 1.3 million barrels last week.
  • Iran aims to raise oil output to 4 million barrels a day by the end of 2016, its deputy minister of industry, mines and trade said.

 

USDSGD:

  • Spot 1.3650
  • USDSGD gained 0.3% to 1.3650, on the continued strengthening of the US dollar and is poised to register its first monthly advance since May.
  • Nomura sees a 60% chance that MAS leaves FX policy unchanged in October, according to an Aug 30th note from the bank.

 

AUDUSD:

  • Spot 0.7525
  • AUDUSD resumed its decline, falling 0.7% to the 0.7500 handle last night.
  • AUDUSD has been under renewed selling pressure since breaking below 0.7600, and a move back to the 0.7400 handle could occur soon especially in the presence of a strengthening US dollar.

 

USDCAD:

  • Spot 1.3085
  • The Canadian dollar is poised for its fourth consecutive daily loss against the US dollar. USDCAD climbed 0.6% to 1.3112 earlier today.
  • Tonight’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 6.6890
  • The PBOC weakened its fixing by 0.1% to 6.6908 against the dollar, the weakest fixing in more than a month, led by overnight strength in the US dollar.
  • USDCNH was largely unchanged as it continues to trade just below the 6.7000 level. Offshore yuan is headed for a monthly decline, with depreciation bets mounting as the Fed prepares to increase borrowing costs and China’s economy shows signs of cooling.
  • 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 102.98
  • USDJPY extended gains by 0.9% to 103.23; the next resistance comes in at 103.50, which could be broken if nonfarm payrolls come in much stronger than expected.

 

GBPUSD:

  • Spot 1.3110
  • GBPUSD pared previous day’s declines to recover back above the 1.3100 handle and looks set to snap its 4-day losing streak.
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