Asian equities were mixed, failing to take the lead from US indices which soared to record highs for the fifth consecutive day. The US dollar weakened against most peers while US Treasuries climbed after 5 straight days of declines. Gold and the Japanese yen gained.
- In the second and final day of her congressional testimony last night, Fed Chair Janet Yellen argued against the removal of the Dodd-Frank’s orderly liquidation authority, which authorizes the Federal Deposit Insurance Corp to borrow from the Treasury to lend to a failing firm, buy its assets, guarantee obligations and pay off creditors.
- Yellen was just as hawkish on her second day as she was on the first, reiterating that waiting too long to tighten monetary policy “would be unwise”.
- She also told lawmakers the Fed would react with a tightening of monetary policy only if they “think that it is demand-based” and threatens their inflation objective, in response to concerns that the central bank will seek to offset changes in fiscal policies put forward by Trump’s administration.
- The Fed’s New York President said he’d be more comfortable about shrinking the Fed’s balance sheet more quickly as “that might actually stretch out the process of raising short-term interest rates a bit”.
- Boston Fed chief Eric Rosengren said the central bank should raise rates “at least as quickly” as the Fed’s median forecast and “possibly even a bit more rapidly”, in view of the risk of “overshooting” which could jeopardize the current expansion. The current projected pace of raising rates by the FOMC is 3 rate-hikes per year.
- Philadephia Fed President Patrick Harker echoed his colleagues’ remarks, reiterating his belief that he sees 3 rate-hikes as appropriate for 2017.
- US headline CPI for January gained the most since Feb 2013, rising 0.6% from a month earlier and 2.5% from a year ago, beating the median forecasts of 0.3% and 2.4%. Core CPI over the same periods rose 0.3% and 2.3%, surpassing the expected 0.2% and 2.1% gains.
- Retail sales last month advanced 0.4% month-on-month, slowing from the upwardly-revised 1.0% jump in December but beating out the median projection of 0.1%.
- Industrial production in January slid 0.3% due to a slump in utilities output as a result of warmer-than-usual weather; zero growth was expected. Capacity utilization fell to 75.3% from 75.6% in December.
- The US dollar failed to make further headway despite Yellen’s hawkish comments and strong economic data overnight, with the Bloomberg Dollar Spot Index reversing gains and closing 0.2% lower in New York and a falling further 0.1% earlier today.
- The benchmark US Treasury 10yr yield advanced 2bps overnight to 2.49% but pared some of its gains to 2.48% earlier today.
- According to fed funds futures pricing on Bloomberg, the odds of a rate-hike in March is now 44%, up from 34% yesterday.
- The S&P 500 Index pushed higher, gaining 0.5% to a new record high as health care stocks led gainers.
- Manufacturing sales in December jumped 2.3% from a month earlier, beating the median estimate of 0.3%; the prior month’s increase of 1.5% was revised higher to 2.3%.
- Canada’s envoy to Washington David MacNaughton is confident that President Donald Trump’s intent to “tweak” the North American Free Trade Agreement won’t result in any major negative changes and added that he is “cautiously optimistic”.
- Trump had recently pledged publicly to only “tweak” Canada’s side of the 20-year old trade deal and ease the flow of goods along the Northern border, while saying he’d focus instead on the “unfair” US commercial relationship with Mexico to the south.
- The unemployment rate for the fourth quarter remained at 4.8%, as expected, the lowest in more than a decade.
- Employment increased by 37,000, more than the 22,000 predicted, while jobless claims fell by 42,400, better than the 500 gain expected.
- However basic pay growth was less than expected, rising by 2.6% in the quarter, instead of the 2.7% expected.
- China’s holding of US Treasuries declined by the most on record last year, as the PBOC dipped into its FX reserves to buttress the yuan. A monthly Treasury Department report released last night showed China held $1.06 trillion in US government bonds, notes and bills in December, up $9.1 billion from November but down $188 billion from a year earlier.
- The PBOC has burned through a quarter of its war chest since 2014 in an effort to underpin the yuan and stem capital outflows. Chinese sales have made borrowing more costly for the US government – 10yr Treasury yields rose to 2.6% last year, from as low as 1.3%.
- The unemployment rate in January fell to 5.7%, from 5.8% last December; analysts had predicted a reading of 5.8%.
- Employment rose by 13,500 last month, surpassing the consensus estimate of 10,000. The gain was mainly driven by a 58,300 rise in part-time employment, which offset a 44,800 drop in full-time jobs.
- The participation rate ticked lower to 64.6%, from 64.7%.
- Retail sales in December slid 1.9% month-on-month, matching expectations. On a year-on-year basis, retail sales grew 0.4%, missing the 1.4% gain forecasted by analysts. Retail sales figures in November for revised lower.
- Spot gold rebounded off a 1-week low of $1,216.78/Oz overnight, and was 0.9% higher at $1,236.86/Oz earlier this morning, as investors continue to weigh firming US inflation and the Fed’s monetary tightening path.
- If inflation expectations continue to rise and remain ahead of policy tightening expectations, real rates would turn negative and thus be bullish for precious metals.
- Gold looks set to snap a 4-day losing streak after the $1,200/Oz support held for the fourth time in 5 days. A break below the $1,220/Oz support level could lead to a lower move to the previous key support of $1,180/Oz.
- Silver for immediate delivery advanced past the $18/Oz resistance for the second consecutive time; the metal was 0.9% higher at $18.0455/Oz earlier today.
- Crude oil futures expiring in March closed 0.2% lower at $53.11/bbl in New York overnight, after an EIA inventory report showed stockpiles rose by 9.53 million barrels last week, more than the 3.5 million gain expected.
- Elsewhere, Libyan crude output exceeded 700,000 barrels per day and looks set to keep rising as conditions in the conflict-ridden country continue to improve for oil companies such as Eni SpA and Total SA, according to state-run National Oil Corp.
- Spot 1.4192
- USDSGD reversed overnight gains and retreated 0.4% to 1.4174 earlier this morning on the back of a weaker US dollar today.
- The downtrend since the turn of the year continues to remains in play; 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 0.7709
- AUDUSD gained 0.7% to 0.7732 earlier today, the currency pair’s highest level in 3 months, following a better-than-expected jobs report despite falling full-time employment.
- The next resistance lies above at 0.7835 – the currency pair’s high last year. To the downside, the 0.7500 support will be key.
- Spot 1.3061
- USDCAD reversed gains from earlier in its session, falling 0.2% to 1.3059 earlier this morning.
- 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. To the upside, a breach of the 1.3200 resistance could signal a move higher to the next level of 1.3400.
- Spot 6.842
- The PBOC strengthened its daily reference rate to 6.8629 to the dollar, from 6.8632 the day before.
- USDCNH retreated 0.2% o 6.8414 earlier. The currency pair has been locked within the range of 6.8000 to 6.9000 for most of this year.
- The 6.8000 remains as a significant support level.
- Spot 113.82
- A day after clearing the 114 handle, USDJPY reversed its course to slide back below it, falling 0.7% to 113.77.
- A breakout of the 115.50 resistance region may result in a move higher to 118.66 – the 1-year high for USDJPY.
- Spot 1.2463
- GBPUSD briefly retreated below the 1.2400 support overnight before reversing declines to rise by 0.4% to 1.2481.
- 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.