December 1, 2016

Daily Observations:

Asian equities rallied as an OPEC-led deal to cut global oil output was struck and fuelled gains in energy shares. Further economic data released in the US last night gave more evidence that the US economy remains robust and supported the US dollar. Gold made fresh lows while government bonds declined.

US:

  • Economic data coming out of the US continues to be firm. The core PCE in October rose 0.1% from a month earlier and 1.7% from a year earlier, matching expectations. Last month’s Chicago PMI jumped to 57.6 from 50.6, exceeding the expected 52.5. ADP employment change numbers showed 216,000 jobs were added in November, higher than the 170,000 projected.
  • The Fed’s Beige Book showed that the US economy continued to expand from early October through mid-November with little inflation, as retail sales, real estate markets and business service firms saw rising activity. The report added that “outlooks were mainly positive” with half of the 12 districts “expecting moderate growth.”
  • Former Goldman Sachs executive Steven Mnuchin, President-elect Donald Trump’s pick for the US Treasury Secretary, said he’ll explore issuing debt maturing in more than 30 years to cushion the effect of rising rates, signalling incoming officials may be open to ideas that the current administration has been willing to implement.
  • Trump’s other pick, Secretary of Commerce, was billionaire investor Wilbur Ross.
  • US Treasury yields tested year-to-date highs following comments from Steven Mnuchin which revived prospects of ultra-long debt issuance; yields were also supported by strong ADP numbers as well as oil’s overnight rally. The benchmark 10yr Treasury yield added 9bps to 2.38%, set of their highest close since July last year.
  • The US dollar soared higher following news of an OPEC deal being stuck. The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, rose 0.5%.
  • The S&P 500 Index slipped 0.3%, to trim its November gain to 3.4%, still the monthly performance since July. Oil and gas producers accounted for all 10 best performers on the benchmark index, while utility shares dropped 2.7%, leading declines among defensive equities.

Canada:

  • The Canadian economy in September expanded 0.3% month-on-month and 1.9% year-on-year, beating estimates of 0.1% and 1.8% respectively. On a quarterly annualized basis, GDP grew 3.5%, more than the 3.4% expected.
  • Industrial products prices rose 0.7% month-on-month in October, accelerating form September’s 0.4% gain and higher than median estimate of 0.6%.

Japan:

  • Manufacturing PMI in November rose from 51.1 to 51.3.
  • 3Q capital spending declined 1.3% year-on-year, missing the median estimate of 0.4%

China:

  • November manufacturing PMI rose to 51.7 form 51.2, exceeding the consensus estimate of 51.0. Non-manufacturing PMI gained as well, from 54.0 to 54.7.
  • The Caixin manufacturing PMI fared worse, falling from 51.2 to 50.9, missing the 51.0 reading expected.
  • Authorities have implemented a 10% tax on cars luxury cars like Ferraris, Bentleys and Aston Martins, in a bid to combat conspicuous consumption and promote more fuel-efficient vehicles.

Australia:

  • 3Q private capital expenditure fell 4% quarter-on-quarter, more than the 3.0% drop initially expected.

Precious Metals:

  • Spot gold slid 2.2% to a more than a 9-month low of $1,162.31/Oz this morning, on the back of a stronger US dollar overnight and higher Treasury yields.
  • With interest rates in the US widely-predicted to climb this month, the precious metal could face further downward pressure. With the $1,170/Oz support breached, the next level of support offered comes in at $1,145/Oz.
  • The previous support of $1,200/Oz now acts as a key point of resistance.
  • Spot silver fell 2.6% to $16.2590/Oz, together with gold. The metal however is still holding above its November low of $16.1770/Oz.

Oil:

  • OPEC members struck an agreement last night to cut production by 1.2 million barrels per day in Jan 2017, the first such agreement since 2008. The deal was broader than many expected, extending beyond OPEC and included Russia as well.
  • Crude oil for January delivery surged 9.3% to $49.44/bbl, the biggest one-day gain since 12th Feb.

 

USDSGD:

  • Spot 1.4355
  • USDSGD was 0.7% higher at 1.4355 earlier in the session, as stronger-than-expected US data and OPEC’s agreement propped up the US dollar.
  • The 1.4200 handle should continue to provide decent support, while the next point of resistance lies above at 1.4444, the currency pair’s year-to-date high.

 

AUDUSD:

  • Spot 0.7396
  • AUDUSD sank 1.2% to 0.7374 last night, as a stronger US dollar began to weigh heavily on the currency pair.
  • Weaker-than-expected 3Q private capital spending and lower iron ore prices provided more headwinds for the Aussie.
  • Support levels further below come in at 0.7259 and 0.7145.

 

USDCAD:

  • Spot 1.3407
  • USDCAD maintained above the 1.3400 handle, as effects from a stronger US dollar helped offset effects from a crude oil’s overnight rally.
  • Support levels below come in at 1.3265 and 1.3000, while the resistance remains at 1.3589.

 

USDCNH:

  • Spot 6.9081
  • The PBOC weakened its fixing the first time in four days, 0.14% lower to 6.8958.
  • USDCNH rebounded off the 6.9000 handle, rising 0.3% to 6.9200 earlier today.

 

USDJPY:

  • Spot 114.21
  • USDJPY gained 1.6% to 114.83, the highest level since Feb 16th this year.
  • The currency pair has since retreated back below 114.50, its current resistance level. A close above 114.50 could result in the pair moving higher to its next resistance of 116.00.
  • Support is likely to be found at the 111.00 handle.

 

GBPUSD:

  • Spot 1.2526
  • GBPUSD rose 0.8% to 1.2541, a 2-week high, earlier this morning.
  • On a longer-term basis, the 1.2300 handle remains a key support level, while 1.2800 acts as an important resistance handle.
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