February 21, 2017

Daily Observations:

Safe haven assets such as gold and the Japanese yen retreated as most investors piled into equities, as most Asian indices advanced. The US dollar strengthened against most of its major peers as traders begin to shift their focus onto a possible March rate-hike.

US:

  • US bond and stock markets were closed Monday for Presidents’ Day.
  • The US dollar was muted overnight but strengthened in Asia earlier today, with the Bloomberg Dollar Spot Index rising 0.3% following recent comments from Fed officials reiterating their support for higher interest rates.
  • The Fed’s Philadelphia President Patrick Harker commented over the weekend that a rate move next month is not “off the table at this point”, while his colleague, Cleveland Fed chief Loretta Mester, said yesterday she doesn’t think the central bank is “behind the curve” on interest rates and monetary policy can’t do much more to help the US labor market.
  • After a long weekend break, the benchmark 10yr Treasury yield gapped higher at the open today, rising by as much as 4bps to 2.45%.
  • The Fed is due to release minutes of its most recent meeting later this week, possibly giving investors a look into how members see Trump’s policies.

Germany:

  • Germany PPI in January rose 0.7% month-on-month and 2.4% year-on-year, beating consensus estimates of 0.3% and 2.0% respectively, and quickening from the prior figures of 0.4% and 1.0%.
  • Germany’s center-left Social Democrats (SPD) have moved ahead of Chancellor Angela Markel’s conservative Christian Democrats in an opinion poll by the Emnid Institute for the first time since 2006, Bild am Sonntag newspaper reported.

France:

  • Marine Le Pen gained ground on her rivals for the French election according to yesterday’s daily OpinionWay poll which showed that first-round support for the anti-euro candidate rose 1% to 27%, with Macron and Republican Fillon unchanged at 20& each. While no surveys so far have shown Le Pen even close to victory in May’s run-off, she’s quickly narrowing the gap to her rivals.
  • OpinionWay showed Macron would defeat Le Pen by 58% to 42% in the second round, although his advantage has halved in less than 2 weeks.

UK:

  • The UK House of Lords began debating the draft law that would allow Prime Minister Theresa May to trigger Britain’s departure from the EU, with some members seeking to make changes that opposition lawmakers failed to secure in the lower House of Commons.

Japan:

  • February’s manufacturing PMI rose to 53.5, from 52.7 in January.

Australia:

  • In its minutes from its most recent meeting, the RBA said consumption growth is set to pick up from a lull in mid-2016 while remaining constrained by low wage growth. The central bank also predicts rising resource exports in a more positive global environment will spur growth as the drag from falling mining investment wanes.
  • GDP later in 2017 is expected to accelerate to 3% and “remain above estimates of potential growth over the rest of the forecast period”.
  • However, the central bank said spare capacity is likely to persist in the labor market and consumption growth could be limited by subdued income levels.

Singapore:

  • For FY2017, Singapore expects a smaller budget surplus of S$1.9billion, or 0.4% of GDP, down from a surplus of S$5.2 billion or 1.3% of GDP, in the last budget. Some key takeaways highlighted by Finance Minister Heng Swee Keat include:
    • Singapore sees spending on healthcare and infrastructure rising rapidly; annual healthcare spending more than doubled to S$10 billion in FY2016 over the last 5 years, while public transport infrastructure is expected to cost the government more than S$20 billion over the next 5 years
    • Singapore will enhance the corporate income-tax rebate
    • The city-state will set aside S$2.4 billion over the next 4 years to implement strategies from the government-appointed Committee on the Future Economy
    • More than S$80 million will be spent on programs to strengthen capabilities in data and cyber-security
    • Foreign worker levy increases for marine & processes firms will be deferred for one more year to aid employers in these sectors
    • The nation will implement a carbon tax from 2019, and a will also introduce a vehicular emissions scheme; it’ll also raise water prices by 30% in 2 phases
    • Minister Heng stressed the importance of prudence in spending, and Singapore will adjust down by 2% the budget caps of all ministries
  • In an interview with Bloomberg Television, National Development Minister and Second Finance Minister Lawrence Wong said property curbs have helped achieve a “soft landing” for the housing market. He also added that such curbs are to “remain for some time”.

 

Precious Metals:

  • Spot gold was little changed due to light trading overnight on a US holiday, and continues to hover just above the $1,230/Oz handle.
  • The precious metal looks to continue its sideways movement over the near term, between the $1,220/Oz and $1,250/Oz range.
  • Russ Koesterich, who helps manage the $41 billion BlackRock Global Allocation Fund, is recommending gold as insurance as he feels markets are under-pricing global political risks, which include looming elections in Europe, political uncertainty in the US and the potential impact of Brexit on the EU.
  • Silver for immediate delivery advanced by as much as 0.5% to $18.0898/Oz and continues to be supported by its 200-day moving average at $17.9513/Oz.

Oil:

  • Crude oil futures expiring in March rose 0.9% to $53.88/bbl earlier today, and looks set to test the $54/bbl resistance level.
  • Crude oil price has held above $50/bbl since OPEC and 11 other nations started trimming supply at the start of this year in order to address a global supply glut.
  • Russia over took Saudi Arabia as the world’s largest crude producer in December, when both countries started restricting supplies ahead of agreed cuts with other global producers, according to data published by the Joint Organisations Data Initiatives Riyadh.

 

USDSGD:

  • Spot 1.4213
  • USDSGD gained 0.3% to 1.4221 earlier on the back US dollar strength in Asia this morning.
  • The currency pair’s downtrend since the turn of the year continues to remain intact although a breakout above the 1.4325 resistance could signal a reversal.
  • To the downside, the 1.4000 remains the support level to watch.

 

AUDUSD:

  • Spot 0.7673
  • AUDUSD remained largely unchanged following the release of minutes of the RBA’s most recent meeting.
  • The muted reaction may be due to RBA’s cautious comments on the labor market. The central bank said spare capacity is likely to persist in the labor market and consumption growth could be limited by subdued income levels.
  • The currency pair continues to struggle to break above the 0.7700 handle.
  • The next important resistance lies above at 0.7835 – the currency pair’s high last year. To the downside, the 0.7500 support will be key.

 

USDCAD:

  • Spot 1.3144
  • USDCAD advanced 0.3% to 1.3145 following renewed USD strength earlier.
  • 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.

 

USDCNH:

  • Spot 6.8646
  • The PBOC weakened its daily reference rate to a 1-weelk low of 6.8790 to the dollar, from 6.8743 a day earlier.
  • USDCNH rose 0.1% to 6.8675 amid a strengthening US dollar this morning. 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.

 

USDJPY:

  • Spot 113.67
  • USDJPY gained 0.5% to 113.70, as the currency pair continues to meander between the 112 and 115 handles, a range which the pair has traded within over the past month.
  • A breakout of the 115.50 resistance level may result in a move higher to 118.66 – the 1-year high for USDJPY.

 

GBPUSD:

  • Spot 1.2439
  • The pound weakened 0.3% to 1.2438 against the dollar following renewed broad US dollar strength.
  • The key resistance at 1.2800 needs to be broken convincingly to signal a possible reversal in the currency pair’s current downtrend. To the downside, the 1.2400 support remains crucial.
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