July 3, 2017

Daily Observations:

Asian stocks were mixed earlier today, following losses in Seoul, Sydney and Kuala Lumpur, and gains in Tokyo, Singapore and Shanghai. The yen remained little changed despite PM Abe’s party’s weekend defeat in Tokyo elections. The US dollar strengthened while gold and US Treasuries fell.

US:

• The core PCE price index for May rose 1.4% year-on-year and 0.1% month-on-month, matching expectations and slowing from the prior month’s readings of 1.5% and 0.2% respectively. The year-on-year rise of 1.4% for May was the lowest reading in 6 months.
• Personal income in May gained 0.4%, exceeding the 0.3% median consensus, while personal spending over the same period edged 0.1% higher, matching expectations.
• The Chicago PMI in June jumped to 65.7, from 59.4 in May, better than the median estimate of 58.0.
• The University of Michigan consumer sentiment index last month rose to 95.1, from 94.5 in the prior month.
• The Trump administration has sent a guided-missile destroyer near Triton Island in the South China Sea, according to a U.S. official, which may cause concern ahead of President Donald Trump’s meeting with his Chinese counterpart this week.
• According to a Bloomberg news report, the US dollar has slumped in the aftermath of 9 of the past 10, despite above consensus reports as recently as February, March and May. The greenback finished the first half on a 4 month losing streak — the longest such stretch since 2011 — wiping out its post-election gain. The currency’s 6.6% decline in the 6 months through June were the worst half for the dollar since the back end of 2010.
  
• The US dollar steadied last Friday, with the Bloomberg Dollar Spot Index rising 0.1% in New York and snapping a 3-day losing streak.
• The selloff in global bonds continued last Friday, as the benchmark US 10yr Treasury yield rose 3bps to 2.30% to close at its highest since 16 May.
• US equities mainly closed higher, with the benchmark S&P 500 Index rising 0.2%, while the tech-heavy Nasdaq Composite slid 0.1%.

Canada:

• GDP in April grew 0.2% from a month earlier and 3.3% from a year ago, compared to 0.5% and 2.3% growths in the month prior; analysts had predicted expansions of 0.2% and 3.4% respectively.
• April’s expansion was Canada’s sixth consecutive month of expansion, underlining the central bank’s view a durable recovery from an oil shock is emerging and adding weight to recent comments from Governor Stephen Poloz suggesting he favors raising his 0.5% interest rate, with investors betting that could come as early as the central bank’s July 12 meeting.

UK:

• According to Bloomberg news, Chancellor of the Exchequer Philip Hammond will use a speech organized by the Confederation of British Industry to tell business leaders their concerns over the split will not be dismissed. It’s a conciliatory gesture to an audience that’s been overlooked, and at times, even dismissed. The change in tone has become apparent since May lost her majority and had to cobble together a working arrangement with a Northern Irish party. Unable to impose her vision of Brexit and under mounting pressure to drop austerity, the prime minister has been forced into making political concessions at home and increasingly likely with her EU divorce partners as well.

Japan:

• Japanese Prime Minister Shinzo Abe is reeling after his Liberal Democratic Party was trounced in the Tokyo elections by an upstart party—named Tokyo Residents First—led by one of the LDP’s former members, Governor Yuriko Koike. An exit poll projects that the LDP will hold its lowest number of seats ever in the Tokyo assembly, potentially eliciting a cabinet reshuffle by the prime minister and lending support to rivals within the party who are looking to unseat their leader.
• Confidence among Japan’s large manufacturers improved for a third straight quarter; the Tankan survey for large manufacturers rose to 17 from 12 in the previous quarter, beating the median estimate of 15. The outlook survey rose to 15, from 11 in the prior quarter.

China:

• The Caixin PMI manufacturing index rose to 50.4 in June, from 49.6 in May, exceeding the median consensus of 49.8 and adding to evidence that the economy is maintaining some momentum after a strong start to the year.
• The China-Hong Kong bond connect will launch on Monday, a move that opens up China’s capital markets to the rest of the world and provides foreign investors with another way to gain exposure to Chinese debt. Inflows could be just what the doctor ordered for the yuan, which is facing a period of seasonal weakness as China Inc.’s demand for foreign currency accelerates to pay out dividends overseas.

Australia:

• The RBA looks set to keep its target rate unchanged at 1.5% when it releases its monetary policy decision tomorrow. Expectations of a hawkish tilt in Tuesday’s statement may prove unfounded, given the last thing Governor Philip Lowe and his board want to do is fuel further currency appreciation. Part of the Aussie story is renewed strength in commodity prices that helped propel six consecutive trade surpluses, including a record one in December. Another is the weakness in the greenback as markets bet against the Fed meeting its rate hike forecasts; in addition, an upswing in Europe and elsewhere prompted talk of broader tightening.
  

Singapore:

• Singapore home prices fell 3% in the 3 months ended June 30 from the previous quarter, according to preliminary data from the Urban Redevelopment Authority released Monday, extending the drop in property values to a record 15th quarter as most measures to cool the market remain in place despite a slight easing in March.
• Home values have dropped 12 percent from their 2013 peak, and sales have declined to about half that year’s level. Singapore’s central bank said it’s not yet time to ease property curbs and some adjustments made by the government in March don’t signal an unwinding of the measures.

Precious Metals:

• Spot gold declined 0.3% to a low today of $1,237.47/Oz, nearing an almost-3 month low, as bond yields continue to rise, damping demand for zero-yielding assets such as gold..
• The 200-day moving average, currently at $1,236/Oz, continues to act as a steady form of support, although upside momentum seems to have stalled following increasingly hawkish tones from central bankers around the world.
• Further consolidation is expected around current levels before the yellow metal commences on its next move and direction. To the downside, the next support comes in at $1,215/Oz.
• Silver for immediate delivery fell 0.3% to $16.5854/Oz. A break below the $16.25/Oz level would signal a technical breakout of the multiyear wedge pattern formed since end 2015.

Oil

• Crude oil futures expiring in August rose 2.5% to $46.04/bbl on Friday, extending its winning streak to 7 consecutive days.
• US drillers targeting crude reduced the number of active rigs for the first time in 24 weeks, according to Baker Hughes Inc. data on Friday.
• Libya’s oil production has climbed to more than 1 million barrels a day for the first time in four years just as oil prices capped the longest run of gains in six months after U.S. shale explorers paused a record drilling expansion.

USDSGD:

• Spot 1.3775
• USDSGD rose 0.1% to 1.3776, and looks set to halt a 4-day slide as investor await Singapore’s PMI for June due later today.
• To the downside, the support remains at 1.3700.

AUDUSD:

• Spot 0.7679
• AUDUSD failed to hold above the 0.7700 handle Friday, paring its rise towards the close and extended declines further today by sliding 0.2% to 0.7673 earlier.
• The top boundary of the pair’s range since April 2016 is likely to be tested soon, and further resistance is expected between 0.7700 and 0.7750.

USDCAD:

• Spot 1.2984
• USDCAD rebounded from a 9-month low reached last Friday, gaining 0.2% to 1.2985 earlier today.
• Any meaningful rebound would require the pair to regain above the 1.3000 handle.
• Having fallen more than 4% in 3 weeks, the currency pair looks to be oversold at the moment. A bounce back to 1.3100 is expected.

USDCNH:

• Spot 6.7792
• The PBOC weakened its fixing rate by 0.04% to 6.7772 per US dollar earlier today.
• USDCNH was little changed earlier, holding near Friday’s close of 6.7807.

USDJPY:

• Spot 112.42
• USDJPY erased an opening loss of as much as 0.4% and is currently unchanged from Friday’s close, following a US dollar rebound earlier today.
• Upside bias for the currency pair remains; once the US dollar halts its selloff, the currency pair should manage to move higher towards the 113 handle.
• The downtrend line since January this year looks likely to be tested again soon; a convincing break above 113 should render the trend line broken.

GBPUSD:

• Spot 1.2999
• GBPUSD slid 0.2% to 1.2996 earlier today, failing to test the 9-month high of 1.3050. Having gained for 7 consecutive sessions, the pair looks likely the snap its winning streak today.
• UK PMI is due later today, and weaker than expected numbers could push the pair lower.