June 12, 2017

Daily Observations:

Asian stocks were mixed after Friday’s selloff in US technology companies. The pound strengthened after its biggest drop in 8 months as Prime Minister Theresa May struggled to keep power in the wake of Thursday’s election. Crude oil rose as Russia said it expects global inventories to begin balancing in the first quarter of next year. Gold held onto losses ahead of the FOMC meeting this Wednesday.

US:

• The US government has “backup plans” for funding itself if Congress doesn’t raise the debt limit before lawmakers leave for their recess as hoped, Treasury Secretary Steven Mnuchin said. While the government hit its borrowing limit in March, it’s been relying on special accounting manoeuvres to keep spending under the current ceiling of nearly $20 trillion.
• House Republicans made headway on President Donald Trump’s pledge to dismantle post-crisis financial rules by approving a sweeping bill last week that rips up major aspects of the Dodd-Frank Act. However, the bill, called the Financial Choice Act, has little chance of passing Senate in its current form. Democrats, whose votes will be needed to pass it, have repeatedly said they have little interest in revisiting Obama-era constraints on Wall Street that were meant to make the financial system safer.
• Donald Trump called James Comey “cowardly”, days after the fired FBI director’s testimony to Senate committee an as Attorney General Jeff Sessions offered to speak to the same panel to answer questions about alleged Russian meddling in the 2016 presidential election. Trump also said he’d be “100 percent” willing to testify under oath that he didn’t demand a pledge of personal loyalty from Comey.
• US tech stocks slumped last Friday, after Robert Boroujerdi, global chief investment officer at Goldman Sachs Group Inc., warned that low volatility in Facebook, Amazon.com, Apple, Microsoft and Alphabet may be blinding investors to risks such as cyclicality and regulation. The Nasdaq Composite plunged 1.8%, while the benchmark S&P 500 Index slipped 0.1%.
• After gaining 0.2% last Friday, the Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, retraced 0.1% earlier today as the US dollar weakened against most of its G-10 peers ahead of multiple central bank policy decisions this week.
• The benchmark 10yr Treasury yield regained back above its 200-day moving average, rising 2bps to 2.22% earlier.

Canada:

• Canada’s labor market continued its stellar performance in May, with a greater-than-expected 54,500 jobs gain that also finally came with signs of a pick-up in wages; analysts were expecting a 15,000 rise in employment, while gain in the prior month of April was a mere 3,200.
• The employment gain was the third biggest 1-month increase in the past 5 years, and was driven by the addition of 77,000 new full-time jobs, which offset falling part-time employment.
• The pace of annual wage rate increases accelerated to 1.3% in May, after falling to a record low 0.7% in April.
• The unemployment rate ticked higher to 6.6%, matching expectations, from 6.5% in April.

UK:

• UK Prime Minister Theresa May’s Conservative Party lost parliamentary majority following last Thursday’s election, and over the weekend was forced to admit that it hadn’t, after all, reached a deal to govern support of Northern Ireland’s Democratic Unionist Party, hours after announcing it had. Foreign Secretary Boris Johnson said everyone is backing May in the wake of a report suggesting he’d challenge for the leadership.

Japan:

• Machine orders in April slid 3.1% month-on-month and gained 2.7% year-on-year, less than the projected 0.5% and 7.3% increases respectively.
• PPI in May was unchanged from a month earlier and rose 2.1% from a year ago, slightly underperforming the 0.1% and 2.2% respective median estimates.

Precious Metals:

• Spot gold steadied, following a 1.4% drop to $1,266.76/Oz last Friday, amid profit-taking after the metal failed to breach the key resistance of $1,300/Oz last week. Increased nervousness among gold investors has grown ahead of an imminent US interest-rate hike later this week.
• A convincing break above the $1,300/Oz may propel the yellow metal to the next resistance region of $1,350/Oz. To the downside, the $1,260/Oz handle is likely to provide some short-term support.
• Silver for immediate delivery tumbled 2.4% last Friday, and fell a further 0.4% to $17.1370/Oz earlier today. The crucial support lies along the $17/Oz handle.

Oil

• Crude oil futures expiring in July gained 0.6% to $46.12/bbl earlier today as Saudi Arabia and Russia sought to reassure investors that coordinated output cuts by OPEC and its partners are draining a global glut.
• Inventories are declining and reductions will accelerate in the next 3-4 months, Saudi Arabia’s Energy Minister Khalid Al-Falih said at a briefing in Kazakhstan with his Russian counterpart, Alexander Novak. Russia is committed to doing everything it can to balance the market, Novak said.
• The low last month of $44.13/bbl remains as the next level of support.

USDSGD:

• Spot 1.3838
• USDSGD slid 0.1% to 1.3836, paring some of Friday’s gains, which saw the pair reach its highest level for the week.
• With the 1.3800 handle holding firm, a move up to the 1.3900 region could be on the cards especially with a potentially stronger USD expected this week.
• A break below 1.3800 and the next level of 1.3725 may be tested soon.

AUDUSD:

• Spot 0.7527
• AUDUSD held onto losses earlier today following a 0.3% fall to 0.7527 at the end of last week.
• The pair is looks to remain supported above the 0.7500 level for the time being, with a move back up to 0.7600 looking likely.

USDCAD:

• Spot 1.3450
• Buoyed by a stronger-than-expected jobs report last Friday, USDCAD extended declines by as much as 0.2% to 1.3438 earlier.
• The pair continues to trade ranged-bound between the 1.3400 and 1.3550 handles.

USDCNH:

• Spot 6.7889
• The PBOC strengthened its fixing earlier today to 6.7948, from 6.7971 last Friday, to the US dollar.
• USDCNH rose 0.1% to 6.7900, extending its recent rebound form a 7-month low reached on 1 June.
• The resistance remains at the psychological 6.8000 level.

USDJPY:

• Spot 110.27
• USDJPY remains little changed from Friday’s close of 110.32, and looks likely to trade sideways in a range bound direction ahead of key central bank interest-rate decisions in both the US and Japan later this week.

GBPUSD:

• Spot 1.2759
• After finding some support above the 1.2700 handle, GBPUSD gained 0.2% to 1.2770 earlier today during Asian trade. The key resistance around 1.2800 remains.
• Focus now shifts back towards the economic fundamentals, with the key CPI and retail sales reports due on the cards form both the UK and US ahead of the FOMC and BOE monetary policy meeting scheduled later this week.