December 2, 2016

Daily Observations:

Concerns over the outlook for the US and stability in Europe weighed on the dollar and global equities, as government bond yields broadly rallied. Gold rebounded from a 9-month low, while crude oil extended gains past the $50/bbl handle.

US:

  • Economic data continue to surprise on the upside in the US, with November ISM manufacturing rising to 53.2, from 51.9 in October, exceeding estimates of 52.5. The Markit US Manufacturing PMI gained to 54.1, form 53.9 last month, beating the consensus forecast of 53.9.
  • Construction spending in October rose 0.5% month-on-month, less than the 0.6% expected; however the prior month’s drop of 0.4% was revised higher to 0.0%.
  • Jobless claims last week rose to 268,000, from 251,000 prior, more than the 253,000 expected. Investors will be looking to tonight’s non-farm payrolls for more clues to the pace of future interest-rate hikes.
  • The benchmark 10yr US Treasury yield rose to a new high of 2.50% – the highest level since mid-2015, before paring gains to close 6bps higher at 2.45%.
  • The US dollar weakened, showing signs of exhaustion following a month of strengthening in November. The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, fell 0.4% after advancing 0.5% on Wednesday.
  • The S&P 500 Index slipped 0.4%, retreating for the third time in four days after ending last week at a record high. Technology shares led losses, amid concern over Trump’s trade policies and as investors rotated out of one of the year’s most favored investment sectors.

Canada:

  • November manufacturing PMI rose to 51.5, from 51.1; no estimates were provided.

UK:

  • Manufacturing PMI for November surprisingly slipped to 53.4, from 54.2 prior, missing the median estimate of 54.4.
  • Brexit Secretary David Davis said the UK would consider making contributions to the EU in order to secure the best possible access to the single market; Dutch Finance Minister Dijsselbloem acknowledged that Britain might be able to participate in the internal market, albeit at a cost. Investors seized upon these comments, speculating on the prospect of the UK retaining preferential access to the EU’s single market post-Brexit.

Europe:

  • According to a Reuters news report, the ECB will extend its bond purchases beyond March at a meeting next week, and will also consider sending a formal signal that debt buying will eventually end.

Japan:

  • Japan may miss its revenue target by several hundred billion yen this year, Nikkei news reported, and could cut its revenue forecast for the first time in 7 years.

China:

  • Next month, a $50,000 cap on how much foreign currency individuals are allowed to convert each year will reset, potentially aggravating capital outflow pressures that are already on the rise. Bloomberg estimates that if just 1% of the China’s 1.4 billion people max out those limits, it would translate to an outflow of about $700 billion, more than the estimated $620 billion that has already flowed out in the first 10 months of this year.

Australia:

  • November retail sales gained 0.5% from a month earlier, surpassing the consensus estimates of 0.3%.

Precious Metals:

  • Spot gold was 0.9% higher earlier today at $1,178.04/Oz, rebounding from its 9-month low made during the previous session and back above the support level of $1,170/Oz, on the back of USD weakness today.
  • With interest rates in the US widely-predicted to climb this month, the precious metal could face further downward pressure. Below the $1,170/Oz support, 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 erased previous day’s losses, rising 2.2% to $16.6850/Oz. The metal continues to hold above its November low of $16.1770/Oz.

Oil:

  • Crude oil for January delivery extended upon Wednesday’s rally, rising 3.3% to $51.06/bbl.
  • The OPEC-led deal forged on Wednesday was broader than many people had expected, given that it extended beyond the bloc with Russia agreeing to unprecedented cuts to its own output.
  • It still remains to be seen if producers will comply with the reductions in output, as well as the response from US shale oil producers.

 

USDSGD:

  • Spot 1.4268
  • USDSGD fell 0.3% to 1.4247, wiping out yesterday’s gains, ahead of US jobs data due later tonight.
  • The 1.4200 handle continues 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 0.7416
  • AUDUSD pared some of its previous day’s declines, gaining 0.6% earlier to 0.7433, as better-than-expected retail sales data this morning helped prop the Aussie dollar.
  • Support levels below come in at 0.7259 and 0.7145, while the key resistance point lies at the 0.7500 handle.

 

USDCAD:

  • Spot 1.3310
  • USDCAD declined, falling 0.9% to 1.3287, on the back of a weaker US dollar and improving crude oil prices overnight.
  • Support levels below come in at 1.3265 and 1.3000, while the resistance at 1.3589 remains.

 

USDCNH:

  • Spot 6.8869
  • The PBOC strengthened its fixing for the fourth time this week, 0.24% higher to 6.8794.
  • USDCNH fell below the 6.9000 handle, retreating 0.5% to 6.8688 earlier.

 

USDJPY:

  • Spot 113.88
  • USDJPY declined 0.6% to 113.58 earlier today, after hitting 9-month high yesterday.
  • The currency pair has struggled to stay above 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 1.2608
  • GBPUSD initially rose 0.8% to 1.2696 following Davis’ comments, but has since pared gains back towards the 1.2600 handle.
  • 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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