July 20, 2016

Daily Observations:

Shares of Asian raw-material producers fell the most in two weeks as industrial metal prices dropped and crude oil traded below $45/bbl. Turkey’s lira fell towards a record low. The greenback rose to six-week highs as US economic data continue to surprise positively.

Global:

  • The IMF cut its global growth outlook for 2016 from 3.2% to 3.1%, and from 3.5% to 3.4% for 2017, citing real effects of Brexit as the main reason for the downgrades. UK growth for 2017 was cut the most, from 2.2% to 1.3%.
  • Emerging market debt is drawing buyers in a negative-rate world, judging by recent flows and recommendations from BlackRock and JP Morgan. In a separate note by Goldman Sachs, European asset managers allocated more than $4 billion into EM debt funds in the past 2 weeks.

US:

  • Housing starts in June rose 4.8% or by 1.189 million from a month earlier, roundly beating estimates of 0.2% and reversing the prior month’s drop.
  • The S&P 500 Index slid 0.1% despite better-than-expected earnings from Goldman Sachs Johnson & Johnson and Microsoft. Netflix slumped 13% after earnings the prior day missed analysts’ estimates.
  • The US dollar rallied overnight as the Bloomberg Spot Dollar Index closed at its highest in six weeks as better-than-expected housing data continue to indicate expansion in the US economy.
  • A Citigroup gauge that tracks the degree to which American data are exceeding projections is at an 18-month high. Fed funds futures data put the odds of a Fed hike this year at 43%, up from 9% at the start of this month.

Europe:

  • Analysts from UBS and SEB estimate the ECB may run of German bonds for QE purchases within the next six months, unless the rules are broadened. The securities that yield less than the ECB’s minus 0.4% deposit rate have grown to more than 60%, meaning that they’re ineligible for QE purchases.

UK:

  • CPI in June rose 0.2% month-on-month, as expected. Core CPI rose 1.4% from a year earlier, better than the 1.3% estimated.

Turkey:

  • The Turkish lira plunged the most in emerging markets as the government broadened a post-coup purge to include university deans, as the central bank cut interest rates by 25bps and Moody’s said it may lower the country’s credit rating to junk.

Japan:

  • The IMF trimmed Japan’s 2016 GDP forecast to 0.2% from 0.3% due to a stronger yen, yet downplayed any need to weaken the currency.
  • The yen has weakened 5.5%, to 106.00, against the US dollar in almost 2 weeks.

Precious Metals:

  • Spot gold was largely unchanged as the precious metal continues to consolidate around the $1,320/Oz – $1,340/Oz range.
  • Spot silver failed to close above the $20/Oz handle, which has now become a resistance level.  Citigroup has warned that investor demand for the metal may sputter in the second half of the year.

Oil:

  • Crude oil futures expiring in August settled at its lowest in more than 2 months at $$44.65/bbl.

 

USDSGD:

  • Spot 1.3550
  • USDSGD climbed to its highest in more than a week, up 0.3% to 1.3564.
  • The 1.3600 region could be key as it coincides with the 100-day moving average as well as the base of the downtrend line in play since January.

 

AUDUSD:

  • Spot 0.7500
  • AUDUSD held steady earlier today around the 0.7500 handle, following a three-day slump of almost 2.0%.
  • Money market pricing on Bloomberg now indicate a 57% chance the RBA will cut rates when it next meets on 2nd Aug.

 

USDCAD:

  • Spot 1.3023
  • A stronger US dollar and weaker oil prices overnight both helped USDCAD above the 1.3000 handle as the currency pair gained 0.3% to 1.3054, its highest in about a week.
  • Immediate support and resistance levels come in at 1.2832 and 1.3140 respectively.

 

USDCNH:

  • Spot 6.6970
  • The yuan surged the most this month after the PBOC kept its fix rate stronger than 6.70 vs the dollar, suggesting it is defending the currency at that level.
  • Offshore yuan advanced as much as 0.2%, the most this month, to 6.6909.
  • Continued defending of the 6.70 level could result in USDCNH dropping back to the 6.65 support region.

 

GBPUSD:

  • Spot 1.3085
  • Following the IMF’s downgrade on UK growth, GBPUSD fell 0.6% to 1.3065 earlier today.
  • The 1.3000 psychological level looks set to be tested again soon.

 

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