Issue#: 327/2017

Spot values at a glance:







Daily Observations:

A global selloff in bonds and equities spread to Asia, with investors on edge as central banks step up talk of tighter policy conditions. Most Asian equity indices were lower. Crude oil and gold also dropped.


  • North Korea and global trade will be in focus at this weekend’s G-20 Summit in Hamburg, Germany. Though US President Donald Trump has said he’s weighing some “pretty severe things” in response to North Korea’s successful ICBM launch, Defense Secretary James Mattis cautioned that the two sides aren’t near war. The meetings will feature separate discussions between Trump and Russia’s Vladimir Putin as well as China’s Xi Jinping, who may push for the US to deal with the North Korea problem on its own. In a speech in Poland Thursday, the Trump said the western world must defeat the twin evils of terrorism and bureaucracies.

Global Bonds:

  • Fixed income didn’t live up to its name on Thursday. A global selloff in government bonds, a by-product of central bankers’ recent hawkish lurches, wreaked havoc on markets. An underwhelming French debt auction was cited as a key catalyst for the moves which spanned the world.
  • DoubleLine’s Jeffrey Gundlach says bond bulls are destined to endure further damage as hedge funds dump sovereign debt and push 10-year Treasury yields “toward 3%” this year.
  • An account of the European Central Bank’s June meeting showed officials discussed removing their easing bias, helping push German bund yields to their highest level in 18 months.


  • The ADP employment change in June underwhelmed markets, coming in at 158,000 compared to the median estimate of 188,000; May’s change was revised lower as well, from 253,000 to 230,000.
  • The Markit PMI for services in June rose to 54.2, from 53.0 in the month prior, and exceeding estimates of 53.0. The ISM non-manufacturing composite index rose to 57.4 from 56.9 in May, beating the consensus estimate of 56.5.
  • US 30yr Treasury yields urged as much as 7bps Thursday to 2.92%, breaching both 50- and 200-day moving averages. The benchmark 10yr yield climbed 5bps to 2.37% in New York and added a further 2bps to 2.39% in Asia this morning.
  • The US dollar retreated overnight following the strong rally in European yields; the Bloomberg Dollar Spot Index ended 0.3% lower. The gauge pared declines earlier, rising 0.1% on the back of a yen weakness today.
  • The S&P 500 Index dropped almost 1% Thursday, its worst day since May. A selloff in tech shares was the biggest culprit for the decline; aside from utilities, most interest rate-sensitive sectors fared poorly amid the bond rout.
  • Investors will be keeping a keen eye on tonight’s nonfarm payroll numbers, as it promises to set the tone for next week’s trade. Economists are calling for job growth of 178,000 after May’s reading of 138,000, with the unemployment rate holding steady at 4.3% and average hourly earnings accelerating to a pace of 2.6% year-on-year.
  • Hedge-fund investor Ray Dalio called time on the era of central bank stimulus, saying the global economy is heading toward a new stage where markets won’t get the same level of support from monetary policy makers. Comments from central bankers “clearly and understandably” signalled that stimulus will be tapered, Dalio wrote in a July 6 note, ushering in “the end of that nine-year era of continuous pressings down on interest rates and pushing out of money that created the liquidity-fuelled moves in the economies and markets.”
    • The Federal Reserve is debating when in coming months to start shrinking its balance sheet, in addition to continuing its gradual campaign of raising rates.
    • European Central Bank officials have stopped warning of a potential rate cut, and last month considered removing a pledge to increase bond buying if needed.
    • The Bank of Japan has significantly scaled back the volume of purchases of government bonds, while maintaining its zero percent target for 10-year yields.
    • Central banks in smaller economies, including the U.K. and Canada, are also shifting gears toward raising rates or removing stimulus.


  • A series of government measures and the prospect of higher interest rates boosted listings and sparked the biggest sales decline in more than 8 years last month, the Toronto Real Estate Board reported Thursday. Average home prices rose just 6.3% to C$793,915, the smallest annual increase since January 2015.
  • Home sales in Canada’s largest city slid 37% to 7,974 in June from the prior year, the third straight decline and the most since January 2009, the board said. Owners flooded the market with properties, with listings up 16% to 19,614.


  • European Central Bank policy makers considered removing a pledge to increase their bond-buying program if needed when they met last month, an account of the June 7-8 meeting showed. While they ultimately opted only to change the wording on interest rates, “it was argued that the improved economic environment with vanishing tail risks, in principle, suggested also revisiting the easing bias with respect to the asset-purchase program.” The removal of their easing bias pushed German bund yields to their highest level in 18 months.


  • Labour Party leader Jeremy Corbyn will meet with the European Union’s chief Brexit negotiator Michel Barnier next week as he stands ready for a snap election that could make him prime minister. The announcement points to the confidence that Corbyn, an old-school Socialist once considered the underdog, has that he can exploit the weakness of his Conservative rivals and come to power on a call to end austerity.


  • China’s great reflation is showing further signs of being a let-down as producer price gains have eased back from February’s eight-year high, after activity in the property and infrastructure sectors slowed amid a government crackdown on risky lending.
  • Prices at the factory gate rose 5.5% in June from a year earlier, the same pace as May, according to a Bloomberg survey of economists before the data due for release July 10. While that’s still a rapid clip, it’s still well off the 7.8% reading four months earlier.


  • The BOJ asserted control over the nation’s bond yields, sending borrowing costs lower with its first fixed-rate bond-purchase operation since February after a global debt selloff. The central bank is acting after German bonds and Treasuries led a global debt selloff Thursday, threatening its yield-curve control strategy, and reiterates Governor Kuroda’s stance that the nation requires stimulus to reach growth and inflation targets.

Precious Metals:

  • Spot gold retreated back to near 7-week lows, falling 0.4% to 1,219.19/Oz, earlier today as rising bond yields pressured non-interest bearing assets. The yellow metal has lost 1.7% this week, the most since early May.
  • On a longer-term basis, following a break below the 200-day moving average earlier this week, the momentum remains to the downside with the next support level to be tested lying around the $1,200/Oz psychological handle.
  • Silver for immediate delivery briefly plunged to its lowest since April 2016, dropping 3.7% to %15.4130/Oz, before paring most of its declines back towards the $16/Oz handle.
  • Following its break below the $16.25/Oz level earlier this week, the metal has completed a technical breakout to the downside from the multiyear wedge pattern formed since end 2015; momentum stays firmly to the downside with the next support coming in around $15.50/Oz.


  • Crude oil futures expiring in August fell by as much as 1.9% to $44.64/bbl earlier today as investors weighed expanding US production against declining crude and gasoline stockpiles.
  • US oil output last week increased by the most since January, according to a report from the Energy Information Administration. Crude inventories fell by 6.3 million barrels, more than triple the median forecast in a Bloomberg survey, while gasoline stockpiles decreased for a third week.


  • Spot 1.3822
  • USDSGD slipped 0.1% to 1.3818, following its rise over the past couple of days from sub-1.3800 levels.
  • On a longer-term basis, momentum continues to remain biased to the downside. The support remains at 1.3700.



  • Spot 0.7586
  • AUDUSD fell 0.3% to 0.7572 earlier, retesting its 1-week lows amid continued weakening of the Australian dollar over the past few days.
  • The Reserve Bank of Australia didn’t change its cash-rate target on Tuesday, and that was expected by all. But it also left the statement largely untouched — dashing speculation that Governor Philip Lowe was going to follow global peers in a tilt to the hawkish side.
  • A retest of the 0.7500 handle is likely.



  • Spot 1.2991
  • USDCAD erased losses from its past 2 sessions, rising 0.5% to 1.2994 earlier to test the 1.3000 handle yet again.
  • Weaker crude oil prices has dampened demand for the Canadian dollar; a break back above the 1.3000 resistance could lead to a rebound to the 1.3200 region for USDCAD.
  • To the downside, the next support comes in around 1.2800.



  • Spot 6.7748
  • The PBOC strengthened its fixing by 0.06% to 6.7914 per US dollar earlier.
  • USDCNH was little changed, maintaining around the 6.8000 handle.



  • Spot 113.63
  • The yen dropped after the BOJ announced its first unlimited fixed-rate bond-purchase operation since February. USDJPY rose by as much as 0.5% to 113.84, reaching its highest level since May 16.



  • Spot 1.2968
  • GBPUSD added 0.2% to 1.2977, following the pair’s failure the break below the 1.2900 yesterday.
  • The 1.3000 resistance region looks to be tested again over the medium term.
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UEN: 201419754M

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