Most Asian equities fell into the red, taking the momentum out of a global rally after US benchmarks surged to a fresh round of record. Bonds retreated before Fed Chair Janet Yellen’s congressional testimony tonight. China’s producer prices increased the most since 2011, further lifting the outlook for global reflation.
- Dallas Fed President Robert Kaplan said the US may have some scope for further growth without overheating the economy, and added that future removals of accommodation “can likely be done in a gradual and patient manner”. However, he did stress that moving sooner rather than later will make it more likely that future removals of accommodation can be done gradually. Kaplan votes on monetary policy this year.
- Fed Chair Janet Yellen’s congressional testimony later today and tomorrow is set to be the main focus among investors this week. She will deliver the central bank’s semi-annual monetary policy report and answer questions from lawmakers.
- All US indices closed at new record highs. The Dow Jones Industrial Average added 150 points to top 20,400 for the first time, as investors added to reflation trades that have characterized markets since the November elections. The S&P 500 Index added 0.5%, as bank shares led all gainers.
- The US dollar hovered near February highs, with the Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, closing 0.2% higher in New York last night.
- US Treasuries fell for a third day; the benchmark 10yr Treasury yield added 3bps in New York and added a further 1bp earlier today. The yield has been climbing since the Feb 8th close at 2.34%, which was the lowest since mid-January.
- According to Fed funds futures pricing on Bloomberg, traders are pricing in a 32% chance that the Fed lift rates at its March 15th
- US President Trump did not give any indication he plans to implement a border tax on Canada during his meeting yesterday with Canadian PM Justin Trudeau, according to a senior Canadian government official.
- Trump had praised the US’ trade relationship with Canada and indicated the country is not his target.
- The European Commission is the latest forecaster to say the impact of Brexit will be milder this year than previously anticipated. The EU’s executive arm revised up its estimate for UK economic expansion to 1.5% in 2017 from a 1% prediction in November. It left its forecast for 2018 unchanged at 1.2%.
- CPI in January rose 2.5% from a year earlier, surpassing the 2.4% expected and the prior month’s gain of 2.3%.
- PPI over the same period gained 6.9% – the most since 2011, beating the consensus estimate of 6.5% and last December’s gain of 5.5%.
- PPI for mining products surged 31% year-on-year while those for raw materials climbed 12.9%, the National Bureau of Statistics said earlier today.
- January’s NAB business conditions index, a measure of hiring, sales and profits, jumped to 16 from 10 in December. A separate gauge of business confidence rose to 10 from 6, the best result in almost 3 years.
- In its quarterly update of forecasts released yesterday, the RBA left inflation estimates broadly unchanged, while growth in the year to June 2017 was cut by 1 percentage point due to a “base effect” from a contraction in 3Q. It however expects GDP growth to increase to 2.5-3.5% in late 2017 and to be above potential for most of the forecasted period. The RBA also warned that higher commodity price levels are unlikely to be sustained.
- Spot gold rebounded off the $1,220/Oz support for the second time in 3 days. The precious metal fell 0.9% to a low of $1,219.42/Oz last night before paring back some losses.
- Gold’s correction over the past 3 sessions has coincided with US equities making new record highs, as broad risk-on sentiment among investors led them to spurn haven assets in search of riskier ones.
- Silver for immediate delivery sank 1.1% to $17.7588/Oz in New York last night but erased some of its losses earlier today. The metal looks set to snap its 6-day winning streak.
- Copper is extending the best start to a year since 2012 after the world’s 2 biggest mines halted some operations. The metal has rallied 11% this year, helped ongoing problems at Freeport-McMoRan Inc.’s Grasberg complex in Indonesia and BHP Billiton’s Escondidia mine in Chile.
- Crude oil futures expiring in March declined 1.7% back towards the $53/bbl handle, ahead of data due to be released later today which is expected to show US inventories increased by 3.5 million barrels last week – its sixth weekly advance.
- Saudi Arabia told OPEC that it reduced production last month by the most in 8 years, more than it pledged under a deal to curb supply, according to the group’s monthly market report.
- 2 consecutive daily closes above the $54/bbl resistance level may signal more upside, with a move to $56/bbl a possibility.
- Spot 1.4217
- USDSGD was mostly unchanged earlier with the currency pair trading just above the 1.4200 handle. With traders keeping one eye on Yellen’s testimony tonight and tomorrow, the currency pair may continue to fluctuate around present levels for the time being.
- The downtrend since the turn of the year remains intact, but a breakout above the 1.4325 resistance could signal a potential reversal.
- To the downside, the 1.4000 remains the support level to watch.
- Spot 0.7668
- AUDUSD continues to consolidate between the 0.7600 and 0.7700 handles. The currency pair declined 0.6% to 0.7631 last night but erased most gains earlier today.
- According to a Bloomberg analysis report, the Australian dollar may extend upon its recent rally on the back of continued strengthening of iron ore prices, which rose to a fresh 2-year high today.
- Beyond 0.7700, the key resistance comes in at 0.7835 – the currency pair’s high last year.
- Spot 1.3063
- USDCAD retreated 0.3% to 1.3055, and looks likely to extend upon its recent decline which saw the currency move lower in 3 out of the past 4 sessions.
- The 1.3000 continues to be key, and 2 consecutive daily closes below it may indicate further downside momentum, with the next support below coming in at 1.2800.
- Spot 6.8689
- The PBOC strengthened its daily reference rate by 0.13% to 6.8806 to the dollar.
- USDCNH declined 0.1% to 6.8665, and looks set to snap a 6-day winning streak.
- The 6.8000 remains as a significant support level.
- Spot 113.71
- USDJPY maintained just below the 114 handle following renewed yen weakness over the past 2 days.
- Some consolidation is expected between the range 112 – 115.50 over the near-to-medium term.
- Spot 1.2526
- GBPUSD was steady earlier today, maintaining a 0.1% gain over yesterday’s close.
- The long-term post-Brexit downtrend remains intact. The key resistance at 1.2800 needs to be broken convincingly to signal a possible reversal in trend. To the downside, the 1.2400 support remains crucial.