January 13, 2017

Daily Observations:

The US dollar pared its weekly loss today, as a rally in gold fizzled with the precious metal declining back below the $1,200/Oz psychological level. Most Asian equities rose, even after Chinese trade data released earlier today underwhelmed.

US:

  • Treasuries climbed, while the dollar fell overnight with US stocks on speculation post-election market moves went too far, as investors await corporate earnings and fresh economic data for clues on the economy’s strength.
  • Trump’s recent appointments of top trade officials represent a “strong signal” that protectionist policies and tariffs on countries like China and Mexico are forthcoming, according to Barclays Plc.
  • The S&P 500 Index declined 0.2%, paring initial losses of as much as 0.9%. Gains in telecommunication and real estate shares were outweighed by losses in the energy and bank shares, with 3 of the largest US lenders to report 4 earnings tonight.
  • The US dollar maintained losses despite paring some of its earlier declines’ the Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, ended 0.4% lower.
  • The benchmark 10yr Treasury yield fell 1bp to 2.36%, and earlier touched 2.31% – its lowest level since Nov 30. The yield added another 2bps this morning, rising to 2.38%.
  • A handful of Fed officials made some fairly hawkish comments overnight:
    • Louis Fed President James Bullard said FX markets may have gotten ahead of themselves and allowing some balance sheet roll-off may be a better way to normalize policy instead of raising rates aggressively. Bullard is a non-voter this year.
    • Dallas Fed chief Robert Kaplan said the FOMC’s median forecast of 3 hikes this year gives “a pretty good approximation” of his current view. Kaplan is set to vote on the committee for the first time this year.
    • Chicago Fed President Charles Evans, who will vote this year, said government policies can boost growth and reduce the need for monetary accommodation this year. Evans had previously said 3 rate hikes this year is “not implausible”.
    • Philadelphia Fed President Patrick Harker was a little more cryptic, saying that Trump’s policies “could cut both ways” and that it’s too soon to change forecasts on the economy or monetary policy.
  • Donald Trump’s pick for Secretary of State Rex Tillerson compared China’s actions in the South China Sea to that of Russia in Crimea, saying a failure to respond had allowed it to “keep pushing the envelope”. Tillerson was further quoted as saying, “we’re going to have to send China a clear signal that first the island-building stops and second your access to those island is also not going to be allowed.”

Canada:

  • Prime Minister Justin Trudeau said he will speak up in defence of Muslims, immigration and feminism in talks with US President-elect Donald Trump, after confirming yesterday his officials have met with Trump’s team in a bid to boost trade ties.

UK:

  • PM Theresa May is set to deliver a speech detailing Brexit plans next Tuesday, according to her spokeswoman.

China:

  • China’s December trade data disappointed, as exports from a year earlier in USD terms sank 6.1%, accelerating from a downwardly-revised -1.6% in November and worse than the consensus estimate of -4%.
  • Imports over the same period rose 3.1%, at a slower pace compared to a 4.7% gain in November which was revised lower, but was slightly better than the median estimate of 3.0%.
  • The trade outlook for 2017 remains uncertain despite a weaker yuan which has cushioned the impact of tepid global demand but has done little to revive sales. More challenges lie ahead as Trump, who has accused China of being a trade cheat and currency manipulator, is due to take office in a week.
  • According to a Bloomberg news report, China has asked some banks to stop processing cross border yuan payments until they balance inflows and outflows, people familiar with the matter said, as authorities step up a campaign to curb yuan outflows.

Precious Metals:

  • Spot gold ended its previous session above $1,200/Oz for the first time since Nov 23, but retreated back below the handle today, falling 1.1% to $1,192/Oz following the US dollar’s reversal in Asia today.
  • Gold prices should remain capped at $1,200/Oz for the time being. $1,180/Oz represents the support level below.
  • Silver for immediate delivery mirrored gold’s price movements, with the metal rebounding off the $17/Oz handle and declining 1.4% to $16.6960/Oz earlier today.

Oil:

  • Crude oil futures expiring in February advanced 1.5% to $53.01/bbl, registering its biggest 2-day gain in 6 weeks, following news that Saudi Arabia had cut output even more than required by an OPEC deal.

 

USDSGD:

  • Spot 1.4282
  • USDSGD rebounded off a fresh 1-month low of 1.4217, reversing declines to gain 0.2% to 1.4289 this morning.
  • Support and resistance levels come in at 1.4150 and 1.4410 respectively.

 

AUDUSD:

  • Spot 0.7485
  • AUDUSD’s run of 8 consecutive positive daily gains looks likely to be snapped today, with the currency pair 0.3% lower at 0.7477 earlier following weaker-than-expected Chinese trade figures released earlier.
  • As expected, the key resistance handle of 0.7500 should hold. The currency pair could be further buoyed closer to 0.7400.

 

USDCAD:

  • Spot 1.3164
  • USDCAD experienced a strong reversal, rebounding back above the key 1.3100 support and was 0.9% higher at 1.3168.
  • It still remains to be seen if USDCAD can rediscover its lows near the 1.3000 psychological handle.

 

USDCNH:

  • Spot 6.8657
  • USDCNH rose 0.3% to 6.8753, amid USD’s decline today in Asia.
  • The PBOC had earlier strengthened its fixing by 0.34%, to 6.9012 per US dollar.

 

USDJPY:

  • Spot 115.11
  • USDJPY rebounded back to the 115 level after declining to 1-month low of 113.76 yesterday, gaining 0.9% to 115.18.
  • Interestingly, the low yesterday coincides with the 50-day moving average 113.75.

 

GBPUSD:

  • Spot 1.2157
  • GBPUSD pared following day’s gains, declining 1.1% to 1.2140 in Asia today.
  • With Brexit details still unclear, most analysts surveyed by Bloomberg are predicting more downside for the pound.
  • The next support below comes in at 1.2090.
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