Spot values at a glance:
Asian equities were mixed as equity indices in Tokyo, Singapore and Sydney gained, while markets in Hong Kong, Shanghai and Seoul faltered. Economic data coming from the US and China underscored the resilience of their economies, while the US administration sent mixed signals on North Korea and its missile launch.
- After suggesting last week that North Korea’s leader “is starting to respect us,” President Donald Trump on Wednesday returned to his tougher line after Kim’s government fired a missile over northern Japan and issued a vague warning about containing US forces on Guam. “The US has been talking to North Korea, and paying them extortion money, for 25 years. Talking is not the answer!” Trump said in a Twitter post.
- However, Defense Secretary Jim Mattis answered “No,” when asked Wednesday whether Trump’s comments mean the US and its allies have taken diplomacy as far as it can go.
- US second-quarter growth was revised upward to the fastest pace in 2 years on stronger household spending and a bigger gain in business investment, putting the economy on a stronger track, Commerce Department data showed Wednesday. 2Q GDP rose at an annualized 3.0% from the previous quarter, improving upon the prior 2.6% and exceeding the median estimate of 2.7%.
- Consumer spending, the biggest part of the economy, rose 3.3% over the same period, accelerating from the prior rise of 2.8% and bettering the forecasted 3.0% gain.
- Meanwhile, employment figures from the ADP pointed to better than expected job growth in August ahead of Friday’s closely-watched non-farm payrolls report. ADP employment change in August rose to 237,000 from 201,000 previously, better than the 185,000 number expected.
- President Donald Trump warned Congress not to fumble the chance to rewrite the US tax code and reinvigorate the economy as he kicked off his effort to sell the American public on a tax plan. In a speech that was light on detail, Trump put the onus on lawmakers to fulfil his call for reducing the tax burden on US companies and workers. The president has yet to sign a signature law of his own, and his attempt to repeal much of Obamacare ended in July with a spectacular defeat in the Senate.
- The S&P 500 Index gained 0.46% overnight led by tech stocks. The Nasdaq Composite rallied 1.05%, while the Dow Jones Industrial Average added 0.12%.
- However, the number of stocks on the New York Stock Exchange that fell to 52-week lows has outnumbered those that reached highs in 10 out of the last 15 trading days. Since the beginning of July, earnings per share forecasts for members of the S&P 500 Index are down 0.6% for the second half of the year, according to the equity strategists at Bloomberg Intelligence. Narrowing stock market breadth, fewer new 52-week highs, bearish momentum signals and the risk-off tone in bond markets are among the signals of a coming breakdown in stocks, according to a JPMorgan research note.
- 10yr Treasury yields edged higher after sinking to their lowest level of the year on Tuesday. The benchmark 10yr Treasury yield gained by as much as 2bps to 2.15% earlier today.
- The US dollar extended its rally against most of its peers; the Bloomberg Dollar Spot Index looks set to gain for a fourth straight session after rising 0.1% earlier. The Dollar Index briefly edged above the 93 handle this morning.
- Germany’s CPI in August rose 0.1% month-on-month and 1.8% year-on-year, both in line with expectations.
- Euro-area confidence in August rose to 111.9, its highest reading in a decade as ECB policy makers prepare for a discussion next week about whether and how to pare back stimulus.
- According to a report from Bank of America Merrill Lynch, the euro has overshot the positive economic data out of the region and that disappointing inflation surprises point to downside risks. The reported added that there’s a risk the Fed is more hawkish and the ECB more dovish than what the market is pricing in. The firm’s currency strategists revised their euro forecasts higher, but kept them below current levels. They now see Europe’s shared currency rising to US$1.15 by year-end and to US$1.19 by the end of 2018.
- Industrial production in July slipped 0.8% month-on-month and rose 4.7% year-on-year, worse off than economists’ predictions of -0.3% and 5.2% respectively.
- RBA Treasurer Scott Morrison expects Australia’s economic growth will accelerate as the drag from falling mining investment comes to an end. He noted, though, that the economy’s performance last quarter might have been hurt by the impact of a cyclone. In extracts of a speech to be delivered at Bloomberg’s Sydney headquarters on Thursday, Morrison reeled off a string of recent positive economic data, from employment to retail sales to business confidence, to justify his optimistic outlook
- The 4 largest Chinese banks reported better than expected second-quarter net income after the close of trading on Wednesday. Economic resilience helped non-performing loan ratios moderate at Bank of China Ltd., Industrial & Commercial Bank of China Ltd., China Construction Bank Corp., and Agricultural Bank of China Ltd. The government’s ongoing campaign against leverage, which has entailed higher interbank rates, has acutely benefited the larger lenders via margin expansion and a return to traditional loan growth.
- The real risks in China’s financial system may lie more with smaller regional lenders, according to analyses performed by UBS Group AG and Fitch Ratings, because of their role in fuelling shadow banking in the world’s second-largest economy.
- The manufacturing PMI in August rose to 51.7, from 51.4 in July, and exceeding the consensus forecast of 51.3. The non-manufacturing PMI slipped to 53.4, from 54.5 in the prior month.
- According to research note from UBS, growth in China has so far been stronger than expected, with industrial production, property investment, retail sales and exports all growing at a faster pace than in 2016.
- Spot gold extended Wednesday’s decline, falling 1.0% to $1,298.46/Oz. It is however still headed for its biggest monthly gain since February, on the back of heightened geopolitical tensions and a weakening US 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. This may be the likeliest outcome should spot gold prices hold above $1,300/Oz in the coming week.
- Silver for immediate delivery retreated as well, by 0.9% to $17.2830/Oz earlier today.
- Crude oil futures erased most of its overnight decline, but remained under pressure below $46/bbl as refinery operations remain shut after Tropical Storm Harvey made landfall a second time, dumping heavy rain across Louisiana. As refineries shut or slow operations, there is less demand for crude, weighing on the price of WTI oil futures. As such, inventory data over the next 3 weeks is likely to be skewed and less reliable. Data is likely to overstate an increase in crude stockpiles.
- Gasoline extended gains for its longest run since 2013, climbing by as much as 6.4% in New York.
- Spot 1.3583
- USDSGD extended its previous day’s recovery, gaining 0.3% to 1.3595 earlier.
- The currency pair is likely to meet some resistance at current levels, around the 1.3600 handle. However the major resistance level comes in at 1.3700. A breakout above the latter could signal a reversal in currency pair’s downtrend channel, formed since the start of the year.
- The support remains around the 1.3350 region.
- Spot 0.7904
- AUDUSD briefly slipped below the 0.7900 handle moments earlier, falling by as much as 0.8% on the day to 0.7887 amid strong US dollar sentiment today.
- The pair has been bound between the support and resistance levels of 0.7800 and 0.8000 respectively for most part of the past 6 weeks.
- Spot 1.2642
- USDCAD advanced 0.9% to 1.2652 on the back of weaker crude oil prices and a stronger US dollar overnight.
- A retest of the 1.2400 support is possible, however the more likely scenario would be an advance to the 1.2800 resistance target.
- Spot 6.6030
- The PBOC strengthened its reference rate for a fourth consecutive day, by 0.14% to 6.6010 per US dollar earlier today.
- USDCNH looks poised to snap a 5-day losing streak after gaining 0.2% to 6.6069.
- Spot 110.52
- USDJPY extended Wednesday’s rally, gaining another 0.7% today to 110.61.
- The 1-month resistance level around 111 is likely to cap future gains, but on a longer term basis, 115 represents a more significant level.
- 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 1.2915
- GBPUSD pared an earlier decline of 0.4% to 1.2879, recovering back above 1.2900.
- The 2-month low of 1.2775 looks to provide near term support.