February 7, 2017

Daily Observations:

Most Asian equities declined, while safe haven assets such as the Japanese yen and gold gained amid political uncertainty in Europe and continued jitteriness stemming from US President Trump’s protectionist policies. The RBA left its key rate unchanged.

US:

  • The S&P 500 Index retreated from near-record levels, as investors shunned riskier assets and adopted a more cautious tone. The post-election Trump-fuelled rally in equities has faltered as market participants assess how the administration will balance protectionist trade policies with promised tax cuts and spending increases. At the same time, traders are assigning greater risk premiums to European countries where anti-establishment movements are gaining traction ahead of elections.
  • US equities edged lower to snap a 3-day winning streak; the S&P 500 Index closed 0.2% weaker, with energy shares leading losers.
  • A group of nearly 100 major technology companies, including tech giants Apple, Alphabet, Facebook and Microsoft are joining forces to fight Trump’s immigration restrictions. The companies filed a joint amicus brief in court, saying that Trump’s immigration ban order violates the Constitution.
  • The US dollar was steady overnight, with the Bloomberg Dollar Spot Index closing 0.1% higher and adding a further 0.2% earlier today. The more-concentrated Dollar Index added as much as 0.2% today as well, rising above the 100 handle.
  • The benchmark 10yr Treasury yield fell 5bps to 2.41% last night, and a further 3bps to a low of 2.38% this morning – the lowest level in 2 weeks.
  • Philadelphia Fed President Patrick Harker, who votes on the committee this year, commented that he is still “supportive of 3 rate hikes this year” and that March should be considered as a potential for “another 25bp increase”.

UK:

  • US President Donald Trump must not be allowed to address the UK Parliament during a state visit to Britain, speaker of the House of Commons John Bercow said on Monday. Prime Minister Theresa May invited Trump to visit the UK and there have been calls by lawmakers not to give him the honor of addressing both houses of Parliament after he introduced an immigration ban on people from some majority-Muslim countries.

Europe:

  • ECB President Mario Draghi pushed back on Trump’s claims that Germany is a currency manipulator and also added that rolling back financial regulation such as the Dodd-Frank rule would be very “worrisome”.
  • Draghi also reconfirmed the ECB’s commitment to their inflation target and stated the use of its asset-buying program to achieve it should be required.
  • French-German 10yr yield spread reached 77bps, the widest since November 2012, on increased risks around the French presidential elections. The yield spread is used as a barometer of risk.
  • France’s National Front leader Marine Le Pen plans to take control of the central bank and fire up the printing presses as she leads France out of the euro if she wins the presidential election in May, her chief economic adviser said. Le Pen’s plan involves:
    • Replacing the euro with a basket of new national currencies
    • Revoking central-bank independence
    • Creating money to finance welfare, industrial strategy and repay debt

China:

  • China’s initial government data for January showed new lending was near and had possibly exceeded the previous monthly record, according to a Bloomberg report. Regulators estimated new loans rose last month to a range that could exceed the 2.5 trillion yuan record set in January 2016.

Australia:

  • The RBA left its key rate unchanged at 1.5%, as expected, and reaffirmed its willingness to tolerate slow inflation in order to avoid further stoking property prices and household debt.
  • RBA Governor Phillip Lowe said that the central bank expects economic growth to be around 3% over the next couple of years, supported by further increases in resource exports and by the period of declining mining investment coming to an end. He also expects consumption growth to pick up and remain moderate.

Precious Metals:

  • Spot gold rose 1.1% to $1,235.82/Oz, its highest level in more than 2 months, boosted by increased safe haven demand among investors amid political uncertainty surrounding US President Donald Trump and the upcoming French elections.
  • Resistance is expected around $1,2250/Oz. On the downside, the precious metal should find strong support at the $1,180/Oz level.
  • Silver for immediate delivery mirrored gold’s rise as well, gaining 1.2% to $17.7703/Oz. The $18/Oz handle is expected to be a key level of resistance.

Oil:

  • Crude oil futures expiring in March declined 1.5% to $53.01/bbl in New York last night, registering its biggest drop in more than 2 weeks before US government data tonight is forecast to show US crude stockpiles expanded, adding to an inventory overhang.

 

USDSGD:

  • Spot 1.4133
  • USDSGD gained 0.2% to 1.4135 earlier this morning, on the back of a stronger US dollar today.
  • The previous 1.4150 support should now act as a point of resistance, while the next support below comes in at the psychological 1.4000 handle.

 

AUDUSD:

  • Spot 0.7672
  • AUDUSD erased an overnight decline to a session low of 0.7630, adding 0.2% to 0.7676 following the release of its monetary policy decision to leave its key rate unchanged.
  • The key support at 0.7600 remains intact, while the recent high near the 0.7700 handle could be tested again soon.

 

USDCAD:

  • Spot 1.3090
  • USDCAD bounced off its key 1.3000 support level, gaining by as much as 0.9% to 1.3135 last night although the currency pair has since pared some of its gains since then.
  • The 1.3000 continues to be key, and 2 consecutive daily closes below it should indicate further downside momentum, with the next support below coming in at 1.2800.
  • The loonie has gained as much as 4% against the US dollar since touching a 10-month low at the end of last year amid higher oil prices and a weaker USD. But looming are possible US trade talks, a weak economic recovery and a potentially dovish Bank of Canada. These fundamental factors, along with technical indicators, represent the risk of a potential reverse.

 

USDCNH:

  • Spot 6.8123
  • The PBOC left its daily reference rate almost unchanged at 6.8604 to the US dollar earlier today, from 6.8604 yesterday.
  • USDCNH rebounded off the 6.8000 support for the third consecutive day, gaining 0.1% to 6.8145 earlier.

 

USDJPY:

  • Spot 111.85
  • The yen strengthened 0.8% to 111.60 the US dollar, its strongest level in more than 2 months, as investors increased their demand for safe haven assets.
  • With the 112 level failing to hold, a move lower to 110, the 50% retracement level of the currency pair’s rally since Nov. 9 is possible.

 

GBPUSD:

  • Spot 1.2464
  • GBPUSD pared some of its overnight 0.5% decline to 1.2428, but continues to struggle to trade back above the 1.2500 handle.
  • The currency pair has stalled over the past week following its recent advance, and seems to be undergoing some consolidation between 1.2400 and 1.2650. The 1.2400 support remains crucial.
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