January 4, 2017

Daily Observations:

Stocks in Asia advanced after broadly positive manufacturing PMI across various countries, including the US, UK, Japan and Canada, fuelled investors’ confidence. Earlier, the S&P 500 Index kick-started its year with its biggest increase in 4 weeks. The US dollar resumed its rally, while crude oil pared some of its previous session’s slump. Gold neared three-week highs.

US:

  • The ISM manufacturing index in December rose to 54.7 from 53.2, exceeding the consensus estimate of 53.8. Gauges for prices paid, as well as new orders, both gained as well. ISM employment increased to 53.1, from 52.3.
  • The Markit US manufacturing PMI edged higher to 54.3, from 54.2; analysts were expecting an unchanged reading of 54.2.
  • Construction spending last November increased 0.9% from a month earlier, beating the median estimate of a 0.5% rise, to $1.2 trillion – its highest level in more than a decade.
  • Former US Treasury Secretary Larry Summers said investors are far too sanguine about the risks of Donald Trump’s policies. He cited the possibility of protectionist measures as well as changes to foreign policy among issues that are creating “extraordinary uncertainty”.
  • The US dollar resumed its rally, following a few sessions of profit-taking before last year’s end. The Bloomberg Spot Dollar Index, which tracks the greenback against 10 major peers, advanced 0.9%. The Dollar Index rose 0.5% and earlier reached its highest level since December 2002.
  • The benchmark 10yr Treasury yield erased its biggest intraday increase since the Fed raised rates last month to end little changed at 2.45%; it had earlier climbed by as much as 8bps to 2.52%. The intraday reversal was attributed to slumping crude oil prices, which in turn bolstered demand for safe haven assets.
  • The S&P 500 Index kicked off its first trading day on a positive note, ending 0.8% higher in New York; telecommunication and health-care stocks led the way.
  • Former Bank of India Governor Rajan said the Fed’s plan to tighten further will ease pressure on other major central banks to keep up their own “aggressive” monetary stimulus.

Canada:

  • The RBC Canadian manufacturing PMI for December rose to 51.8, from 51.5 in the month prior.

Europe:

  • Stocks entered bull-market territory with the Euro Stoxx 50 Index rising more than 20% from its low last June, while most sovereign bonds fell after German inflation accelerated.
  • German December CPI rose 1.7% year-on-year, recording the biggest jump on record, and beating the consensus estimate of 1.3%.

UK:

  • The Markit UK manufacturing PMI jumped to 56.1 in December, from an upwardly-revised 53.6 in the prior month; analysts were expecting a drop to 53.3.

China:

  • According to a Bloomberg news report, the Chinese government may consider asking state-owned enterprises to temporarily convert some foreign currency holdings into yuan under current accounts if necessary, citing people who declined to be named.

Japan:

  • The Nikkei Japan manufacturing PMI rose from 51.9 in November to 52.4 in December, the highest reading in a year.

Singapore:

  • Singapore home prices fell 3% in 2016, the third straight year of declines amid government-imposed property cooling measures. An index tracking private residential prices fell 0.4% in the 3 months ended 31st from the previous quarter, according to a statement from the Urban Redevelopment Authority. Prices fell for a 13th straight quarter, the longest streak since data was first published in 1975.

Precious Metals:

  • Spot gold neared 3-week highs, gaining as much as 1.5% to $1,165.28/Oz before retreating back below $1,160/Oz.
  • Resistances above come in at $1,165/Oz and $1,180/Oz, while $1,150/Oz and $1,125/Oz should provide support.
  • The precious metal rose 8.0% in 2016, paring the bulk of its gains in the second half of the year after rising by as much as 29% to its peak in July.
  • Spot silver rose to its highest level in almost 3 weeks, gaining 3.7% to the $16.5000/Oz handle.

Oil:

  • Crude oil futures expiring in February slumped 2.6% overnight to $52.33/bbl, following news of Libya, who is Africa’s biggest oil reserve nation, ramping up oil production from its biggest oil field. Declines seem to have halted though, with crude futures 0.7% higher earlier today before US government data later is forecast to show stockpiles last week declined.

 

USDSGD:

  • Spot 1.4496
  • USDSGD briefly rose to a fresh 7-year high of 1.4547 last night before retreating back to the 1.4500 handle today.
  • The Singapore dollar has weakened 2.4% against the greenback in 2016, marking the fourth consecutive year of losses against the USD, its longest run based on Bloomberg data going back to 1981.
  • Further support can be found below at the 1.4400 and 1.4150 levels.

 

AUDUSD:

  • Spot 0.7234
  • AUDUSD gained 0.5% to 0.7241, nearing the upper bound of the currency pair’s range over the past 2 weeks.
  • A clean break above 0.7250 could translate to a move to the next resistance point of 0.7311.
  • AUDUSD fell 1.5% in 2016, the currency pair’s fourth consecutive yearly drop.

 

USDCAD:

  • Spot 1.3444
  • USDCAD continues to be supported at the 1.3400 handle. The currency pair bounced off 1.3400 last night before adding 0.1% to 1.3450 earlier today.
  • USDCAD fell 3.2% in 2016, snapping three straight years of gains since 2013.

 

USDCNH:

  • Spot 6.9685
  • The PBOC weakened its fixing earlier today, by 0.04% from 6.9498 to 6.9526 per US dollar, its weakest fixing since 2008.
  • USDCNH fell 0.4% to 6.9470.
  • The psychological resistance of 7.0000 remains the key level to watch.

 

USDJPY:

  • Spot 118.11
  • USDJPY continues to threaten to breach its current resistance of 118.66, retracing from it for the second time in 3 weeks. The currency pair is around 0.1% lower at the 118.00 handle.
  • The 116.00 support level has proven to be resilient over the past 2 weeks.
  • USDJPY ended 2016 2.9% lower, snapping a 3-year positive streak. The currency pair fell as much as 17.8% in 2016, but recovered back most of its declines amid a strengthening US dollar in the latter half of the year.

 

GBPUSD:

  • Spot 1.2234
  • GBPUSD earlier fell 0.6% to 1.2200 following news that UK’s ambassador to the EU, Ivan Rogers, had unexpectedly resign. The currency pair however pared losses later on after a government spokesperson said the resignation took place so as to enable a successor to be appointed before the UK invokes Article 50 by end March.
  • The next support below comes in at 1.2090.
  • GBPUSD declined 16.7% last year, the third straight year of declines and the currency pair’s largest annual drop since 2008.
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