July 1, 2016

Daily Observations:

Despite weak economic data releases from China and Japan, MSCI Asia Pacific Index is on track to post a 3.0% gain this past week. Expectations that central banks will continue to back stop financial markets are out-weighing evidence that global economic growth remains in the doldrums.

Data Releases

  • China
    • Manufacturing Purchasing Managers Index (PMI) registered at 50 in June, marginally lower than 50.1 the previous month but in line with analysts forecasts.
    • Non-manufacturing PMI at 53.7 was higher than 53.1 in May 2016.
    • The line between expansion and contraction of business activity lies at the 50 mark. So, manufacturing in China is struggling but the service sector is growing.
    • Manufacturing employment drops to 47.9; service sector employment also contracting to 48.7.
    • Independent readings from Caixin and Markit Economics put the manufacturing PMI at 48.6 in June vs 49.2 in May.
    • Bottom line – domestic demand for service trends higher and potentially offsets decline in factory output affected by anaemic global growth.
  • Japan
    • Tankan large manufacturers index was 6 in June; higher than estimates of 4.
    • June Tankan index for large non-manufacturers dropped to 19 matching market estimates but lower than the 22 figure recorded in March 2016.
    • Nikkei Japan June manufacturing PMI was 48.1 vs 47.7 the previous month.
    • May unemployment rate was 3.2% in line with market estimates.
    • May core consumer prices fall 0.4% YoY vs a 0.3% drop in March and April 2016.
    • Household spending also came in weaker dropping 1.1% in May from a year earlier.
    • Steady employment data is a positive but weak household spending and declining prices continue to pose challenges to Abe-san and Kuroda-san.
    • Bloomberg Intelligence Economics expects Bank of Japan to deploy additional JPY5 trillion fiscal stimulus in Q3 2016.
  • Elsewhere…
    • The 5 Year/5 Year break-even rate, which forecasts the rate of consumer price increases from 2021 to 2026, fell to a record 17-year low of 1.31% last week. This gauge of US inflation expectations, which dates back to 1999, puts paid to any chance of a rate hike by the US Federal Reserve any time soon.
    • S&P downgrades EU’s debt rating from AA+ to AA based on concerns that EU’s fiscal standing will take a hit from losing one of its wealthiest members. If the UK is one of EU’s wealthiest members, who really stands to lose from Brexit??
    • US benchmark bond yields and UK gilts continue to head lower in the face of further easing expectations. US 10 Year Treasury yield closed at 1.47% last night from 1.51% earlier this week. UK gilts was at 0.867%.
    • After posting gains for 1H 2016, crude oil futures for August 2016 delivery closed 3.1% lower last night to end at US$48.33/bbl. WTI crude for August 2016 is currently trading relatively unchanged at US$48.06/bbl.
  • GOLD
    • Spot US$1,332.10.
    • Posted gains of close to 25% in 1H 2016.
    • Broad based USD weakness; disappointing Chinese and weak Japanese data; renewed possibility of further easing by global central banks underscore demand for the precious metal as an ultimate store of value.
    • Immediate resistance US$1,333/oz to US$1,340/oz.
    • Support first at US$1,320/oz and below that, the 30 June low of US$1,312/oz.
  • USDSGD
    • Spot 1.3452, continuing its uptrend this week. USD has fallen 0.6% this past week.
    • Singapore’s home prices continue to retrace for an 11th Quarter, the longest streak of quarterly losses since 1975.
    • Home values are down 9.4% from the 2013 peak based on data released by Urban Redevelopment Authority.
    • Apartment prices are higher by 0.2% in prime districts for the quarter ended 30 Jun 2016.
    • Suburban properties slid 0.7% with the only gains of 0.3% recorded by areas closer to the prime districts.
  • AUDUSD
    • Spot 0.7476
    • AUD upside intact but weakened by poor Chinese PMI numbers.
    • RBA is not expected to indicate an easing bias in next Tuesday’s statement.
    • Immediate resistance at 0.7500, then 0.7600.
    • Support at 0.7400; below this level sees 0.7350.
  • USDCAD
    • Spot 1.2956
    • Canada’s GDP gained for the first time in April as output rose 0.1% after posting losses of 0.2% in March and 0.1% in February 2016.
    • The real estate boom in Toronto and Vancouver coupled with higher consumer spending helped offset the negative effects of weak oil production and Alberta’s wildfires.
    • Growth for 2016 is projected to be a modest 1.3%.
    • Support 1.2887 before 1.2655
    • Resistance 1.3049; 1.3188
  • USDCNH
    • Spot 6.6734
    • PBoC fixes on-shore yuan at 6.6496, 0.28% weaker than yesterday’s rate of 6.6312.
    • The yuan is on track for a fourth consecutive week of decline.
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