July 25, 2017

Daily Observations:

The US dollar resumed declines and Asian equities were largely mixed as investors await more earnings in the US, as well as the Fed’s policy decision, this week. Oil crept toward $47/bbl after Saudi Arabia promised deep cuts to crude exports next month to help ease a global glut. Gold maintained near a 1-month high.

US:

• The Markit manufacturing PMI for July rose to 53.2, from 52.0 last month, exceeding the median estimate of 52.3. PMI for services maintained at 54.2, matching expectations.
• Existing home sales in June slipped 1.8% from a month ago, reversing a 1.1% gain in May and falling more than the consensus estimate of a 0.9% drop.
• US President Donald Trump told Senate Republicans to begin the process of repealing the Affordable Care Act on Tuesday, but the party’s leadership is still undecided on what proposal they’ll put forward for consideration. Separate plans, to repeal and replace Obamacare or just repeal it, both may lack the support to pass the upper chamber due to discord in the Republican Party.
• Jared Kushner said he had no improper contacts with Russian officials during the presidential campaign after he spent two and a half hours answering questions from Senate investigators examining meddling by Moscow in the 2016 election. Kushner insisted Monday he “did not collude with Russia” nor does he “know of anyone else in the campaign who did so”.
• The Nasdaq Composite closed at a record, while the S&P 500 Index was little changed as its two largest groups by weighting, financials and IT, advanced to offset broader declines. Alphabet Inc., the parent company of Google, reported second-quarter revenue that failed to live up to analysts’ expectations, sending shares lower in the after-hours session.
• The US dollar maintained near its lows, following mixed economic data from the US last night and amid continued political uncertainty coming from the White House. The Bloomberg Spot Dollar Index was ended flat in New York last night but slipped 0.1% lower during Asia trade earlier.
• The benchmark 10yr yield pared an overnight 2bp gain to 2.26%, slipping 1bp to 2.25% earlier in its session today.

Canada:

• The International Monetary Fund said in the quarterly update to its World Economic Outlook that Canada will lead the Group of Seven countries in economic growth this year, expanding at a 2.5% clip, up from 1.9% in its April forecast.
• Economic data released last night seemed to support the notion, as wholesale trade sales in May rose 0.9% from a month earlier, accelerating from April’s 0.8% gain and faster than the median estimate rise of 0.5%.
• The country’s economic strength can be seen in its resurgent currency. The Canadian dollar strengthened to 80 US cents (or C$1.2500 per US dollar) on Monday for the first time in more than a year.
• However due to declining oil and energy prices, the S&P/TSX Composite Index is one of the world’s worst performers this year, falling about 1%.

Europe:

• PMI from France and Germany both disappointed, as well as official euro-area manufacturing data which fell to 56.8, lower than the median estimate of 57.2, signalling that GDP is expanding at its weakest pace in 6 months and adding to concerns that the euro strength is beginning to weigh on exports.

China:

• A number of Chinese banks that helped finance HNA Group’s global M&A binge are reportedly pulling back from the conglomerate. This “grey rhino”, whose debt-fuelled empire includes sizable stakes in Chinese, US, European, and Australian publicly traded companies, may constitute a risk to Chinese financial stability.
• The news comes amid a separate Wall Street Journal report that Chinese President Xi Jinping has approved a curtailment of overseas investment by large domestic companies. Navid Mahmoodzadegan, co-president of investment bank Moelis & Co., highlighted that cross-border activity involving Chinese companies has “certainly slowed down” amid the imposition of capital controls.

Singapore:

• Headline inflation for June rose 0.5% year-on-year, slower than the 1.4% rise in May and the median estimate gain of 0.7%. Core CPI over the same period advanced 1.5%, less than the both the predicted and prior gain of 1.6%.
• According to a Bloomberg report, artificial intelligence, once fully adopted, might lift Singapore’s annual growth rate to 5.4% in 18 years. That would be the largest increase among 33 countries studied and would translate into an additional $215 billion in gross value added. Without AI, the economy is predicted to expand 3.2%.
  
• Singapore’s drive to become a global high-tech hub has seen the government, agencies, and companies actively encourage the study and implementation of technology across industries. Current uses range from self-driving buses and taxis to robots assisting the elderly with exercise. Recently, the government has also begun to place greater emphasis on developing artificial intelligence and data analytic capabilities.

Precious Metals:

• Spot gold held near a 1-month high, just below the $1,260/Oz resistance, as investors await outcome of the Fed’s policy meeting this week while keeping track of continued political uncertainty stemming from within the White House.
• Spot gold has advanced in 9 out of its past 10 sessions, and a correction lower to the 200-day moving average support at $1,230/Oz is possible.
• Silver for immediate delivery looks set to pullback from a 3-week high, after retreating by as much as 0.7% to $16.4400/Oz earlier.
• The resistance at $16.50/Oz is key, with downside risk remaining high if silver fails to break above it; the next support below comes in around $15/Oz.

Oil

• Crude oil futures expiring in September erased most of its last Friday’s losses, after gaining 1.3% in New York yesterday and a further 0.8% earlier today to $46.70/bbl, thanks to a one-two punch from the U.S. and from OPEC’s biggest producer. Halliburton’s cautious outlook on activity in the US shale patch and Saudi Arabia’s curtailed exports to the world’s largest economy were cited as chief contributors to the rally.
• Saudi Arabia will cap shipments at 6.6 million barrels a day in August, 1 million lower than a year earlier, Energy and Industry Minister Khalid Al-Falih said.  He also added that nations that aren’t making good on their commitment to curb production will be admonished.

USDSGD:

• Spot 1.3610
• USDSGD remained mostly unchanged for the day, paring an earlier session rise and falling back toward the 1.3600 handle.
• The next important support handle below comes in around 1.3500, although a rebound back up to either 1.3700 or 1.3750 is likely to occur beforehand.

AUDUSD:

• Spot 0.7943
• AUDUSD investors are bracing for more volatility, with the Australian 2Q CPI and a speech by RBA Governor Lowe both occurring tomorrow, on the same day as the Fed’s interest rate decision.
• AUDUSD continues to be buoyed above the 0.7900 handle, holding above it today for the fifth consecutive session.
• The resistance at 0.8000 remains key, while below, the support lies at 0.7835.

USDCAD:

• Spot 1.2492
• USDCAD extended recent declines, falling by as much as 0.4% to 1.2484, a fresh 14-month low, amid mounting evidence the economy is gathering speed and expectations the central bank will continue tightening monetary policy.
• 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 6.7452
• The PBOC weakened its fixing by 0.11% to 6.7485 per US dollar earlier today.
• USDCNH pared an earlier gain and retreated back below its 6.7500 handle to remain relatively unchanged for the day.
• The 9-month low of 6.7234, established in early June, continues to act as a key support.

USDJPY:

• Spot 110.87
• USDJPY rebounded from a 5-week low but soon pared most of its gain to fall back below the 111 handle. More support is expected at 110.

GBPUSD:

• Spot 1.3032
• GBPUSD halted a 2-day recovery to remain largely unchanged on the day from Monday’s close at 1.3035.
• GBP bulls will be keeping an ear out for a speech by BOE’s Haldane later today. Haldane had suggested the need to remove some of the ongoing monetary stimulus in the second half of the year, and could also give markets a hint about his vote at next week’s BOE meeting.