Daily Observations:
Most Asian equities accompanied the S&P 500 Index into the red earlier today, with Shanghai stocks extending upon Monday’s 2.5% slump as investors weighed the impact of monetary tightening in the US and China amid fragile economic recoveries. Government bonds consolidated near their lows following a two-month long slide, while gold maintained above the $1,150 handle.
US:
- The S&P 500 Index fell 0.1% in New York, slipping for the first time in seven days and gaining 3.1% last week. Energy stocks jumped together with utilities, but were offset by losses in bank shares and consumer discretionary stocks.
- Citibank forecasts the Fed sticking to a two-hike scenario for 2017, in line with 65% of respondents in the bank’s latest CitiFX poll, according to a note to clients yesterday.
- Bloomberg’s Fed funds futures pricing data indicate a 100% chance of a rate hike by the Fed later this week, and a two-in-three chance of additional policy tightening by June next year.
- The benchmark 10yr Treasury yield rose by as much as 6bps to 2.53% before paring its advance to close 1bp higher at 2.47% in New York.
- Hedge funds and other large speculators raised bearish bets on 10yr Treasuries to the highest level in almost 2 years last week.
- The US dollar weakened overnight, as oil-exporting currencies continued gains over the greenback. The Bloomberg Dollar Spot Index, which tracks the USD against 10 major peers, slipped 0.6%.
- Goldman Sachs’ Gary Cohn has been named as the top chief economic policy adviser for President-elect Donald Trump, and will head the National Economic Council.
UK:
- The Chancellor of the Exchequer Phillip Hammond said to the parliament’s treasury committee yesterday that it looks increasingly likely that the UK will look to engage in a longer transitory period away from the EU, adding that there is a growing consensus from both sides that a longer transitory period will be mutually beneficial.
China:
- China’s economic stabilization held in November, offering policy-makers more room to switch focus away from stimulus and towards curbing financial risks.
- Industrial production climbed 6.2% from a year earlier, slightly better than the 6.1% predicted.
- Retail sales improved 10.8% year-on-year, exceeding October’s gain of 10.0% and the median estimate of 10.2%.
- Fixed asset investment increased 8.3% in the first 11 months of this year, maintaining the same pace last month and matching expectations.
- Home sales rose 16% from a year earlier, the slowest pace this year, according to Bloomberg calculations based on the government data released earlier today, as renewed property curbs in red-hot markets continue to damp demand.
- The Chinese economy has remained resilient in the current quarter as exports were cushioned by a weaker yuan and factory prices snapped out of their deflationary funk. With the expansion on pace to land in the middle of the government’s 6.5% – 7.0% full-year target, attention is shifting to curbing excess corporate borrowing and industrial capacity and reining in surging property prices.
Japan:
- October machine orders rose 4.1% month-on-month and fell 5.6% year-on-year, with the former beating the consensus estimate of 1.1% and the latter missing the median forecast of -4.9%.
- PPI in November gained 0.4% from a month earlier, and declined 2.2% from a year earlier, exceeding estimates of 0.3% and -2.3% respectively.
Precious Metals:
- Spot gold rebounded off a session low of $1,151/Oz and was 0.9% higher at $1,165.92/Oz last night.
- With the $1,170/Oz support breached recently, the next level comes in at $1,145/Oz; the previous support of $1,200/Oz now acts as a key point of resistance.
- Spot silver neared a non-month high, and traded 1.6% higher to $17.2008/Oz last night.
Oil:
- Crude oil for January delivery pared earlier gains of as much as 5.8% to close 2.6% higher for the sessions, at $52.83/bbl, the highest close since June.
- The recently-struck deal between OPEC members and outside nations, including Russia, was agreed at a meeting in Vienna over the weekend, and is set to usher in the first global petroleum cuts in 15 years, covering about 60% of global output.
USDSGD:
- Spot 1.4248
- USDSGD declined 0.5% to 1.4227 following overnight USD weakness.
- The currency pair seems to be undergoing some consolidation at the moment, following a break-out above the previous resistance of 1.3850 in October.
AUDUSD:
- Spot 0.7614
- AUDUSD advanced 0.6% to a session-high of 0.7514, although the currency pair has settled back towards the 0.7500 resistance handle.
- The currency pair has been struggling to trade above the 0.7500 level since mid-November.
- Support levels below come in at 0.7259 and 0.7145.
USDCAD:
- Spot 1.3126
- USDCAD was largely unchanged earlier today, despite USD weakness and stronger crude oil prices overnight.
- The Canadian dollar has advanced almost 3% against the US dollar over the past 2 weeks.
- The next test for the currency pair comes in at its 200-day moving average of 1.3078.
USDCNH:
- Spot 6.9293
- The PBOC raised its fixing earlier today, by 0.22% to 6.8934 per US dollar.
- USDCNH fell 0.3% to 6.9181, following a higher yuan fixing and USD weakness overnight. Slightly better-than-expected economic data from the world’s second-largest economy earlier today has also helped buoy demand for the yuan.
USDJPY:
- Spot 115.05
- USDJPY rebounded off the key resistance level of 116.00 overnight, and traded 0.9% lower at 114.74 earlier today.
- Short-term support is likely to be found above the 113.00 handle.
GBPUSD:
- Spot 1.2680
- GBPUSD gained 0.9% to 1.2700, after comments from Hammond that odds of a longer transitory exit from the EU are higher.
- The currency pair is likely to test its two month-high of 1.2775 again soon. 1.2800 acts as an important resistance handle, while the key support at 1.2300 remains.