Spot values at a glance:
Stocks in Asia mostly extended their best week since March, after Fed Chair Yellen last night reiterated her intention to tighten only gradually as investors US inflation data due tonight as well as earnings from some of America’ s biggest banks. Gold erased its previous session’s gain, while crude oil held above the $46/bbl handle.
- Federal Reserve Chair Janet Yellen said 3% US economic growth would be an admirable but difficult feat to achieve over the next few years, casting doubt on the Trump administration’s ability to reach that goal with deregulation, infrastructure spending and tax reform.
- Yellen explained that economic growth is the sum of productivity gains and increases in the labour force. However, productivity growth is “very hard to move,” and a government policy that boosted it just a few tenths of a percent would be a “very good payoff,” she said.
- Yellen also said she had not yet concluded that recent weak readings on inflation were a sign that it would fail to rise to the Fed’s 2% target, and the US central bank remained on track to continue raising interest rates at a gradual pace. She called the risks to inflation “two-sided”, which explains why policy makers “have felt that it probably remains prudent to remain on a gradual path of rate increases”.
- PPI in June rose 0.1% month-on-month and 2.0% year-on-year, versus the respective median estimates of 0.0% and 1.9%. Stripped of the effects of food and energy, PPI underwhelmed, gaining 0.1% from a month ago and 1.9% from a year before, both below their consensus estimates of 0.2% and 2.0% respectively.
- President Donald Trump promised action to crack down on foreign countries like China that are “dumping steel” onto the US market, and is pondering tariffs or quotas on imports to address the issue. A number of economic luminaries, including former Fed Chairman Ben Bernanke, have cautioned that new tariffs would be a bad idea. The White House is reportedly divided on how to handle this matter and awaits the results of a Commerce Department investigation.
- US stocks rose yet again, as the Dow Jones Industrial Average (+0.1%) posted another record close while financials fuelled the S&P 500 Index’s (+0.2%) advance. However, a Bloomberg report warned that the earnings season is shaping up to be a bit disappointing for investment banks, which are forecast to show a double-digit drop in trading revenues thanks to placid markets.
- US Treasury yields rose as Fed Chair Janet Yellen said it was “premature” to say that inflation would continue to fall well short of 2%; the benchmark 10yr Treasury yield gained 2bps to 2.34% in New York, and another 2bps to 2.36% earlier today in Asia trade.
- The US dollar continued to weaken, as the Bloomberg Dollar Spot Index extended declines by another 0.1% overnight to reach its lowest close since Sep 2016.
- It will a big day for US economic news Friday, with reports on the consumer price index, retail sales, industrial production and consumer confidence. While most of the attention will like be on the CPI in the wake of Yellen’s remarks this week that the recent slowdown might be more than just temporary, don’t discount the importance of retail sales. A poorer than expected number could bring more pain to retail stocks such as Target Corp., which are some of the worst performers this year.
- Canadian government bonds extended their slump, pushing two-year yields to the highest since 2013, the day after the Bank of Canada raised interest rates for the first time in seven years and signalled more tightening may be ahead. While the decision to boost rates was expected by a majority of economists surveyed by Bloomberg, investors were surprised by the Bank of Canada’s effort to downplay weak inflation and signal that the economy’s output gap will close earlier than previously forecast.
- According to Bloomberg pricing data, there is a 74% chance the central bank will raise rates again this year.
- UK PM Theresa May unveiled a landmark draft law to take Britain out of the European Union, sparking a furious backlash from Scotland and Wales and fuelling political opposition that could derail her plans for Brexit. The leaders of the semi-autonomous Scottish and Welsh governments attacked May’s plan for failing to give them sufficient powers and threatened to block the bill in votes in the national legislatures in Edinburgh and Cardiff.
- The UK acknowledged for the first time on paper that it will have to pay money to the European Union as it withdraws from the bloc, seeking to damp down a row over the country’s so-called Brexit bill. Britain’s so-called exit bill has shaped up to be one of the thorniest issues in the Brexit negotiations, with media speculation putting the fee as high as 100 billion euros.
- The country’s fiscal watchdog, the Office for Budget Responsibility, said in a report published yesterday that the Brexit bill would not pose “a big threat” to fiscal sustainability.
- China’s June exports rose 11.3% year-on-year in dollar terms, accelerating from the prior month’s rise of 8.7% and beating analysts’’ expectations of 8.9%. Imports over the same period increased 17.2%, surpassing both the prior month’s and median estimate figure of 14.8% and 14.5% respectively.
- Billionaire Elon Musk’s plan for Tesla Inc. to build what he says is the world’s biggest lithium-ion battery system in South Australia will be credit positive for the region if it can improve reliability and lower power-supply costs, according to Moody’s Investors Service. Widespread use of a successful technology will help improve business confidence in the state and stimulate investment at a time when South Australia’s economy is transitioning away from auto production, Moody’s said in an emailed statement.
- Singapore’s economy expanded in the second quarter this year, rising an annualized 0.4% quarter-on-quarter and 2.5% year-on-year, versus prior quarter’s readings of -1.9% and 2.5% respectively. Economists surveyed by Bloomberg had predicted expansions of 1.1% and 2.7% respectively.
- Singapore has benefited from a pick-up in global trade since late last year as Chinese demand for electronics and other manufactured goods strengthened. The government is projecting an improvement from last year’s 2% expansion.
- Spot gold looks set to erase its most of its gains for the week after sliding 0.6% to $1,214.90/Oz earlier today. The $1,215/Oz support level will need to hold for the precious metal to gain higher.
- The next resistance region lies around $1,230/Oz, where the precious metal’s 200-day moving average roughly resides as well. An upside breakout above the resistance would render the downtrend line since the early June broken, and signal more upside potential.
- Silver for immediate delivery slumped 2.0% to $15.6398/Oz earlier. The metal has failed to gain back above the $16/Oz handle and could be set to move lower instead.
- 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 continues to remain biased to the downside with the next support coming in around $15/Oz.
- Crude oil futures expiring in August advanced 1.3% to $46.08/bbl, and looks poised to close the week higher as the International Energy Agency boosted its estimate for global demand growth this year by about 100,000 barrels a day to 1.4 million a day – the strongest in 2 years.
- Another government report showed crude inventories have dropped almost 14 million barrels the past 2 weeks, the most since September.
- Spot 1.3764
- USDSGD declined by as much as 0.3% to 1.3736, but soon pared its slide following weaker-than-expected 2Q GDP numbers.
- The support at 1.3700 remains key.
- Spot 0.7736
- AUDUSD held near 8-month highs, after the pair had rallied 1.1% yesterday with the Australian dollar benefitting from stronger-than-expected China trade data.
- The pair is threatening to break out, to the upside, of an 18-month long wedge formation. A move past 0.7750 should confirm the breakout, and signal more upside potential for AUDUSD.
- Spot 1.2729
- USDCAD was reversed an overnight gain, and is threatening to extend recent declines after falling 0.1% to 1.2721 during Asia trade.
- The next support levels come in at 1.2680, followed by a major one at 1.2460.
- Spot 6.7824
- The PBOC strengthened its fixing by 0.04% to 6.7774 per US dollar earlier.
- Offshore yuan is headed for a weekly advance, despite being largely unchanged against the US dollar earlier today.
- Spot 113.43
- USDJPY erased a previous session’s decline, rising 0.5% to 113.58 earlier this morning.
- According to Bloomberg news, yen weakness seems inevitable after the BOJ delivered a clear signal in the bond market in the past week it has no plans to follow other major central banks in rolling back stimulus anytime soon.
- The key resistance for the currency pair remains at 115.50.
- Spot 1.2948
- GBPUSD extended its rebound off the 1.2800 handle since Wednesday, rising 0.3% to 1.2955 last night.
- The pair looks likely to continue consolidating between the 1.2800 and 1.3000 handles.