July 11, 2017

Daily Observations:

Most Asian stocks rose as technology shares led the advance for a second day ahead of comments later this week by U.S. Federal Reserve Chair Janet Yellen and earnings from some of the biggest companies in the world’s largest economy. Gold pared an overnight rebound, while crude oil shows signs of stabilizing above the $44/bbl mark.

US:

• Consumer credit in May gained 5.8%, or by $18.4 billion, the fastest rate in 7 months as revolving credit such as credit cards surged 8.7%. Non-revolving credit such as auto and student loans gained 4.7%.
• With global equities remaining near all-time highs, scrutiny turns to corporate results. PepsiCo Inc., JPMorgan Chase & Co., Citigroup Inc. and Wells Fargo & Co. are reporting this week. Investors will also hear from U.S. policy maker Lael Brainard on Tuesday in a speech focused on normalization of central bank balance sheets, and Federal Reserve Chair Janet Yellen’s semi-annual Monetary Policy Report to Congress is Wednesday.
• Hedge funds and other large speculators are now more bearish on the dollar than at any point since 2013, Commodity Futures Trading Commission data released July 7 show. Bets that the USD will decline outnumbered bets it’ll strengthen by 81,582 contracts, higher than the 30,037 contracts the previous week. The positioning represents a swing from a net bullish stance of more than 300,000 wagers in January.
  
• Stronger US economic growth could lead to short-term regrets for dollar bears. The 5-yr average of Citigroup’s US economic surprise index suggests the same as after declines in the first half of the year, June typically tends to mark a turn toward better-than-expected data.
  
• Moves by the US dollar was relatively muted overnight; the Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, pared a 0.1% decline to close largely unchanged in New York.
• The selloff in Treasuries took a breather, as the benchmark 10yr Treasury yield fell 2bps to 2.37%. The yield curve continued to steepen.
• Tech shares kept Friday’s momentum going, pacing gains for major US equity gauges Monday. The S&P 500 Index inched 0.1% higher while the Nasdaq 100 rose 0.7%.
• American brick-and-mortar retailers suffered at the hands of a familiar foe Monday. Reports indicated that Amazon has been setting up a service to rival Best Buy’s “Geek Squad” and assist customers in setting up smart home devices. Shares of Best Buy fell more than 6%, its biggest loss in more than a year. The SPDR S&P Retail ETF fell more than 2% on the day. Separately, Abercrombie & Fitch Co.’s announcement that it failed  reach a buyout deal sent the stock—as well as some of its peers—tumbling.

Canada:

• According to Bloomberg data, market-implied odds that the central bank raises rates on July 12 are at 94%, up from just 5% a month ago. Policy makers’ comments triggered the swing. BOC Governor Stephen Poloz and Senior Deputy Governor Carolyn Wilkins jolted markets last month with talk of tightening. On Friday, data showing faster employment growth solidified the view that the central bank will hike.

Australia:

• The NAB business conditions index in June rose to 15, from 11 in May, reaching its highest level since Jan 2008. The business confidence index gained as well, rising by one point to a reading of 9.
• Traditionally, the RBA is seen as having a dual mandate of maintaining stability of the currency and full employment. Both goals support its aim to control inflation over the medium-term. According to a Bloomberg news report, there’s another goal that’s lesser known and somewhat less defined: the economic prosperity and welfare of the people of Australia. That’s allowed the central bank to keep the benchmark rate at a record low 1.5% for 11 months as it weighs the impact of a rate move on a financially-stretched population against an array of mixed economic signals.
• Both hawks and doves are being kept at bay. Just 4 of 24 economists think the RBA will cut rates again, citing stagnant wages, record-high household debt and declining savings. 7 predict a hike — reflecting expectations of wages and inflation returning to normal in a strengthening economy. But most reckon rates will be on hold this year and next, while market bets on cuts have faded.

Singapore:

• Temasek Holdings Pte’s assets increased 13% to S$273 billion in the 12 months ended March 31, CIMB Private Banking estimated, as stocks rallied and the Singapore state investment firm struck more private deals. That’s a switch from a 9% slide the previous fiscal year that was its worst performance since the global financial crisis.

Precious Metals:

• Spot gold pared its previous session’s loss, rebounding by as much as 0.6% last night to $1,216.15/Oz. Gains seem to be capped just below $1,220/Oz though, a support-turned-resistance level. Momentum bias remains firmly to the downside, although the psychological level of $1,200/Oz should prove to be a tough support to break.
• Hedge funds’ net-long positions on gold fell last week by more than half, the biggest reduction since 2015. Exchange-traded products backed by precious metals saw cash outflows over the past month, while most other commodity funds took in more investor money. Total assets in SPDR Gold Shares, the world’s top bullion ETF, fell to the lowest since March last week.
• Silver for immediate delivery rebounded as well, climbing 3.0% to $15.7456/Oz last night.
• Following its break below the $16.25/Oz level last week, the metal has completed a technical breakout to the downside from the multiyear wedge pattern formed since end 2015; momentum stays firmly to the downside with the next support coming in around $15/Oz.

Oil

• Crude oil futures expiring in August held above $44/bbl, rising 0.4% overnight and a further 0.7% to $44.72/bbl earlier today.
• A US government report due later today is expected to show inventories probably fell by 2.85 million barrels last week.
• Russian Energy Minister Alexander Novak reiterated on state television that the OPEC-led pact to cut output is working.
• Crude oil has steadied following previous day reports that Libya and Nigeria may be asked to cap supply to help rebalance the market. The African producers, exempt from the OPEC-led agreement to cut output, have been invited to a July 24 meeting to discuss the stability of their production, Kuwait’s oil minister said.

USDSGD:

• Spot 1.3842
• USDSGD pared its previous session’s 0.3% gain, falling 0.2% earlier today to 1.3838 as investors shift focus onto an upcoming testimony this week by Fed chair Janet Yellen.
• The pair has recently found steady support at 1.3800 and its downward momentum over the past couple of months seems to have abated.

AUDUSD:

• Spot 0.7615
• AUDUSD advanced 0.3% to 0.7616, gaining after survey data showed business conditions have returned to around pre-GFC levels.

USDCAD:

• Spot 1.2896
• USDCAD revisited 10-month lows, falling as much 0.4% to 1.2871 last night.
• With a rate hike this week more or less fully priced in, the downside is likely to remain capped at around the 1.2800 handle. The risk firmly remains to the upside, with a pullback to 1.3000 conceivable.

USDCNH:

• Spot 6.8056
• The PBOC weakened its fixing by 0.03% to 6.7983 per US dollar earlier.
• USDCNH slipped 0.1% to 6.8043 earlier. The pair has been mostly steady over the past week, mainly consolidating around the 6.8000 handle.

USDJPY:

• Spot 114.19
• USDJPY held onto gains, maintaining near a 15-week high of 114.37 earlier. BOK Governor Kuroda has recently reiterated the central bank remains ready to adjust policy as needed following its intervention last week to cap rising yields.

GBPUSD:

• Spot 1.2878
• GBPUSD remained near a 2-day low, around its 50-day moving average of 1.2870 following last week’s poorer-than-expected factory data.
• Strength in sterling has dissipated over the past week, after the pair failed to hold above 1.3000 earlier this month. The 1.2800 support should continue to hold for the medium term.