July 20, 2017

Daily Observations:

Most Asian equities climbed for a ninth straight day, spurred by fresh all-time highs for US equities. The Bank of Japan maintained its monetary policy and pushed back its forecast for achieving its inflation target. Gold retreated from a month-to-date high, while the dollar and crude oil gained.

US:

• US President Donald Trump urged Senate Republicans to remain in the Capitol until Obamacare is repealed as the traditional summer recess period approaches. Majority Leader Mitch McConnell said he’s still planning on holding a procedural vote that could pave the way for a straight repeal of the Affordable Care Act early next week, despite public opposition from within his party that would keep such a bill from passing. After a lunch meeting with Trump, several Republicans expressed optimism that their prior plan to both repeal and replace Obamacare could be revived. Without a health care victory, Trump may go winless in his first year as president.
• Money-market investors aren’t waiting for Treasury Secretary Steven Mnuchin to inform Congress of the exact date the US will run out of cash. Traders are already willing to pay more for bills maturing after Oct 19 to avoid being caught holding securities vulnerable to a technical default, in line with Congressional Budget Office forecasts that predict the federal government will hit the debt ceiling around early- to mid-October, according to Bloomberg news.
• 3 potential candidates – Glenn Hubbard, John Taylor and Kevin Warsh, to replace Fed Chair Janet Yellen next year said Tuesday, in an editorial co-authored with Stanford’s John Cogan, that proposals by Republican lawmakers and President Trump’s administration to cut taxes and roll back regulations would lead to faster economic growth.
• US equities surged Wednesday, as the S&P 500 and Nasdaq Composite indices hit record highs for a second straight day, gaining 0.5% and 0.6% respectively. Shares of Morgan Stanley helped pace the advance with a 3.3 percent gain as second-quarter earnings showed resilience in trading revenues.
• However, according to Bank of America Merrill Lynch’s most recent fund manager survey, allocations to US stocks have reached 20% underweight. The last time that percentage was greater was in January of 2008, when the S&P 500 Index was near its previous peak before crashing during the financial crisis.
• The US dollar stabilized after selling down recently, with the Bloomberg Dollar Spot Index gaining 0.1% in New York and adding another 0.1% in Asia trade earlier today.
• US Treasury yields steadied following Tuesday’s drop; the benchmark 10yr Treasury yield added 1bp to 2.27% last night.

Canada:

• Negotiations on a revamped North American Free Trade Agreement will be held Aug 16 to Aug 20 in Washington, trade Representative Robert Lighthizer’s office said in a statement Wednesday. The details were revealed two days after Donald Trump’s administration unveiled its negotiating objectives for NAFTA, and as trade officials from Canada and Mexico met in Ottawa on their own

Japan:

• The BOJ kept is monetary stimulus program unchanged, although it pushed back its projected timing for reaching a 2% inflation target for a sixth time, now expected to hit around the fiscal year starting Apr 2019, versus a previous projection of around fiscal 2018. The central bank pledged to maintain its yield-curve control program and asset purchases and also cut its price estimates for the current and next fiscal years.
• The changes underscore the BOJ’s slow progress toward its price goal at a time when other major central banks are turning toward normalizing their monetary policy after years of stimulus.

Australia:

• Australian full-time jobs surged in June, rising by 62,000 which was higher than May’s gain of 53,400. Overall employment change amounted to 14,000, less than the 15,000 expected and the prior month’s rise of 38,000. Part-time employment fell by 48,000, accelerating from the previous month’s 15,400 fall.
• The jobless rate maintained at 5.6%, as expected, while the participation rate ticked higher to 65.0%, from 64.9%.
• According to Bloomberg, the data is likely to embolden Aussie hawks who suspect the RBA is considering the timing of its first interest-rate increase in almost 7 years. The central bank had said this week the labour market’s recent strength removes “some of the downside risk” to its wage growth forecasts.

Precious Metals:

• Spot gold seems poised to snap a 7-session winning streak, declining 0.1% to $1,238.31/Oz earlier and failing to rest the $1,250/Oz resistance last night.
• Investors will be looking for clues from the ECB today regarding the central bank’s policy path. A more hawkish than expected statement could result in a pullback for the precious metal back to the $1,230 near-term support.
• Silver for immediate delivery was largely unchanged on the day. Downside risk continues to remain high with the resistance looming near at $16.50/Oz; the next support below comes in around $15/Oz.

Oil

• Crude oil futures expiring in August gained 1.6% to $47.12/bbl in New York, as US crude and gasoline stockpiles extended declines.
• US crude inventories slipped 4.7 million barrels last week, the Energy Information Administration reported Wednesday. Gasoline stockpiles dropped 4.5 million barrels, the most since March.
• Meanwhile, Iran is proceeding with plans to boost output to 5 million barrels a day by the end of the year, its oil minister said.

USDSGD:

• Spot 1.3692
• USDSGD snapped a 6-session losing streak yesterday, and extended its rebound today further by 0.1% to 1.3694.
• The pair has declined almost 1.5% since the start of last week. Some consolidation around current levels is expected. The next important support handle below comes in around 1.3500.

AUDUSD:

• Spot 0.7940
• AUDUSD spiked 0.7% to a fresh 2-year high of 0.7989 following the release of this morning’s jobs report, but soon erased almost all of its gains to end back largely unchanged on the day.
• Following the breach above the key level at 0.7835 on Tuesday, the next resistance lies at the psychological 0.8000 handle.

USDCAD:

• Spot 1.2615
• USDCAD continues to hold above the 1.2600 handle, retreating back above it after declining by as much as 0.4% to 1.2578 last night, boosted by an overnight rally in crude oil.
• The Canadian dollar has been the best performing currency in the world over the past 2 months. The next bastion of support lies at 1.2460 – the pair’s 2-year low

USDCNH:

• Spot 6.7653
• The PBOC weakened its fixing by 0.02% to 6.7464 per US dollar earlier.
• USDCNH extended its rebound, gaining 0.2% to 6.7700 earlier.
• The 9-month low of 6.7234, established in early June, acts as a key support.

USDJPY:

• Spot 112.13
• USDJPY reversed an earlier decline to gain back above the 112 handle, after the BOJ announced that it is maintaining its monetary stance and pushing out its forecast for achieving its inflation target.
• A move back up to the 114.50 resistance is likely.

GBPUSD:

• Spot 1.3027
• GBPUSD erased its previous day’s advance, retreating 0.3% to 1.3013 earlier today. The pound has largely weakened this week following slower-than-expected inflation gains in June, reducing the chances of an imminent interest-rate increase by the Bank of England.
• A decline back below the 1.3000 handle may lead to further weakness for the pound with a probable target of 1.2800 over the near term.