July 19, 2016

Daily Observations:

The Aussie and kiwi both weakened by the most this month as speculation mounts that their central banks will cut interest rates. Most Asian stocks retreated, as equities in China, Hong Kong, South Korea and Singapore fell by around 0.5% – 1.0%.

US:

  • The S&P 500 Index notched its fifth record in six sessions, and the Nasdaq 100 Index closed at the highest level of the year as chipmakers rallied amid deal activity as SoftBank Group agreed to buy ARM Holdings Plc for $32 billion.
  • Treasuries extended last week’s biggest decline in a year as the brightening US economic outlook and better political clarity in the UK helped sap demand for haven assets. The yield on 10-year notes rose 3bps to 1.58%, after jumping 19bps last week.

Canada:

  • Canadian Imperial Bank of Commerce is the first non-European covered bond issuer to go negative; the bank sold $1.4 billion of debt maturing in Jul 2022 with a zero coupon to yield minus 0.009%, according to Bloomberg.
  • In a separate Bloomberg report, flows into ETFs focused on long-term Canadian bonds have increased almost 25% to $450 million this year, on track to hit an all-time high. Flows to medium-term and short-term bond funds both rose around 11%.

Europe:

  • The ECB published its corporate-bond holdings for the first time, showing it has bought debt from more than 150 companies under a program designed to spur economic growth.
  • Issuers ranged from foodmaker Danone SA and miner Glencore Plc, to Deutsche Luftansa AG and Telecom Italia SpA whose notes are rated junk by at least one rating company.
  • The ECB is set to release its policy decision this Thursday and no rate change is expected though economists surveyed by Bloomberg are predicting fresh measures to be announced by the end of the year.

Turkey:

  • Turkey’s rating may be cut to junk, Moody’s warned this morning as President Erdogan expanded his post-coup arrests to 20,000 officials.
  • The central bank meets today and the market is expecting a 0.25% rate cut to 8.75%.

Australia

  • In minutes of its July meeting that was released earlier today, the RBA said it’s keeping its policy options open as it predicted the economy probably cooled last quarter, while momentum in the jobs market has eased and inflation is set to remain weak.
  • Members of the committee indicated they are awaiting a new set of economic forecasts before making a decision on their next move, spurring speculation that a rate cut could be imminent should next week’s inflation report come in weaker than expected.

China:

  • China’s Caixin magazine reported that the State Council could press ahead with a bad-loan-to-equity swap program, which would give lenders stakes in troubled companies.

Precious Metals:

  • Gold continues to trade near 2 week-lows as risk appetite among investors continue to return to financial markets, reducing demand for bullion as a safe haven asset. Spot gold is 0.3% higher at $1,330.40/Oz after yesterday’s lowest close since Jun 30th.
  • Investors pulled $793 million last week out of SPDR Gold Shares, the most since November, according to data compiled by Bloomberg.
  • Spot silver closed below $20/Oz yesterday for the first time in 2 weeks. The next major support lies around $18.50/Oz.

 

USDSGD:

  • Spot 1.3506
  • The Singapore dollar slipped for the third day in a row, weakening by as much as 0.3% earlier today to 1.3519.
  • The support for USDSGD at 1.34000 remains significantly strong. To the upside, immediate resistance at 1.3722 is expected.

 

AUDUSD:

  • Spot 0.7523
  • The Aussie fell 1.1% against the greenback earlier today to 0.7509, following the release of RBA’s July minutes.
  •  A strong rejection of the 0.7650 resistance level suggests more weakness could be in store for the Aussie.

 

USDCAD:

  • Spot 1.2944
  • USDCAD rose 0.6% earlier in the session to 1.3022 largely in part to a stronger US dollar overnight.
  • Immediate support and resistance levels come in at 1.2832 and 1.3140 respectively.

 

USDCNH:

  • Spot 6.7094
  • USDCNH was little changed, falling 0.1% to 6.7082 after the PBOC set its reference rate 0.01% weaker than yesterday – the weakest since Oct 28, 2010.
  • Commerzbank noted that should the PBOC show little intention of defending the yuan at 6.7 vs the USD, the pair could fall to 6.8 in weeks.
  • Offshore yuan fell to its weakest level since 7th Jan this year on Friday – 6.7195.

 

GBPUSD:

  • Spot 1.3222
  • GBPUSD is currently undergoing some consolidation between the 1.3200 and 1.3300 handles.
  • Much focus will be placed on inflation data which will be released later today.

 

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