Issue#: 311/2017

Spot values at a glance:

USDSGD

USDCNH

AUDUSD

USDJPY

USDCAD

GBPUSD

Daily Observations:

Asian equities advanced as the selloff in technology shares showed signs of easing. Treasuries and the US dollar remain little changed ahead of this week’s FOMC policy decision. Crude oil gained above $46/bbl following its first 2-day gain in 3 weeks, while gold fluctuated near 1-week lows.

US:

  • Federal Reserve officials surprised some onlookers by unveiling a rough plan for balance sheet runoff in the minutes for their May meeting, with many economists predicting formal guidelines to come in as early as this week, according to a Bloomberg report.
  • To avoid unsettling financial markets, the Fed wants to clearly communicate its unwind strategy well in advance, and the next step in that process is releasing a fresh version of its “Policy Normalization Principles”. Minutes of the Fed’s May meeting both foreshadowed an update to the principles and provided details on how the unwinding might proceed by describing a staff plan to slow the reinvestment of maturing securities via gradually rising caps.
  • Officials will continue their discussion about how and when to start shrinking their $4.5 trillion balance sheet during a meeting on Tuesday and Wednesday in Washington at which they are also widely expected to raise rates.
  • US technology shares fell a second day amid concern the group had risen too far, too quickly. The Nasdaq Composite slid 0.5% to cap its biggest 2-day decline since the start of December.
  • According to Bloomberg analysis piece, just 5 names account for nearly 75% of the drop in the Nasdaq Composite, which has fallen more than 2.1% since June 7. Tech giants such as Apple Inc., Microsoft Corp. and Alphabet Inc. has since fell by as much as 6.5%, and these companies account for nearly 30% of the index’s weighting, while their outsize impact has driven the gauge lower even though the bulk of the stocks are doing fine.
  • The broader S&P 500 and Dow Jones Industrial Average indices fell 0.1% and 0.2% respectively.
  • The US dollar was slightly weaker overnight, with the Bloomberg Dollar Spot Index slipping 0.1%, largely dragged down by a surging Canadian dollar.
  • The benchmark 10yr Treasury yield gained 1bp to 2.21%, with odds of a rate hike at 98% according to fed funds futures pricing data on Bloomberg.

Canada:

  • The Bank of Canada offered its strongest signal yet that it’s ready to raise interest rates as the economy gathers steam, in surprisingly hawkish comments by Senior Deputy Governor Carolyn Wilkins. In a speech yesterday, she highlighted how the nation’s recovery is broadening across regions and sectors, giving policy makers “reason to be encouraged”. She also downplayed worries about Toronto’s housing market and said policy makers need to keep their eye on the future evolution on growth, not only current economic conditions.

UK:

  • UK Prime Minister Theresa May bought herself a stay of execution by telling her own party she was sorry for the mess she made of last week’s election and promising to clean it up. She told lawmakers from her Conservative Party that she takes full responsibility for the disastrous result and will stay on only for as long as she’s wanted.
  • May has also pledged to consult the party more over policy and said she will seek a national consensus on Brexit in a bid to heal the divisions over the best approach to leaving the EU.

China:

  • China’s campaign against leverage may cause some individual banks to be wound down, according to Andrew Sheng, chief adviser to the China Banking Regulatory Commission. He added that the industry is well aware of the bad assets underpinning some borrowers’ loans and that the authorities are looking at shadow banking “in great detail”.

Australia:

  • The NAB business conditions index in May fell to 12 from 13 in the prior month. The business confidence index slid as well over the same period, from 13 to 7.

Singapore:

  • Retail sales in April gained 1.6% from a month earlier and 2.6% from a year ago, better than the forecasted 1.1% and 2.3% gains respectively, and accelerating from the prior May’s 0.4% month-on-month drop and 2.0% year-on-year rise.
  • Chinese Foreign Minister Wang Yi and Singaporean counterpart Vivian Balakrishnan said Monday in a briefing in Beijing they reached an agreement to work more closely on China’s “Belt and Road” trade and infrastructure initiative. Balakrishnan described ties as “strong” and said China’s relationship with Southeast Asia was “stable, calm and positive”.

Precious Metals:

  • Spot gold dropped to its lowest level in more than a week earlier today, falling 0.5% to $1,262.80/Oz, before paring some of its declines later on. The precious metal looks set to remain under pressure ahead of an imminent interest-rate hike by the Fed 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 continued its slump after failing to hold above its 200-day moving average last week. The metal fell by as much as 1.9% to $16.8200/Oz, breaking below the key $17/Oz handle.

Oil

  • Crude oil futures expiring in July gained 0.6% in New York and a further 0.4% to $46.28/bbl in Asian trade earlier today.
  • Inventories are forecast to have slid by 2.25 million barrels last week, according to a Bloomberg survey before an Energy Information Administration (EIA) report Wednesday. Crude stockpiles expanded for the first time in 9 weeks through June 2. Output at major US shale plays will reach a record in July, according to EIA.
  • The low last month of $44.13/bbl remains as the next level of support.

USDSGD:

  • Spot 1.3827
  • USDSGD fell 0.1% to 1.3826 earlier today, erasing a 2-day advance. More sideways action is expected before the Fed’s interest-rate decision this Wednesday.
  • A break below 1.3800 and the next level of 1.3725 may be tested soon.

 

AUDUSD:

  • Spot 0.7560
  • AUDUSD revisited 6-week highs earlier this morning, gaining 0.3% to 0.7565 and continues to remain on the front foot having staged a rebound from 0.7400 since the beginning of the month.
  • A move back up to 0.7600 is looking likely.

 

USDCAD:

  • Spot 1.3288
  • The Canadian dollar outperformed all of its G-10 peers, extending gains earlier today following hawkish comments last night from Bank of Canada’s Senior Deputy Governor Carolyn Wilkins.
  • USDCAD plummeted to a 7-week low, falling 1.3% to 1.3274 and breaking below its 200-day moving average in the process.
  • The next support below at 1.3225 is likely to be tested soon.

 

USDCNH:

  • Spot 6.7883
  • The PBOC earlier kept its fixing rate little changed at 6.7973, from 6.79481 yesterday, per dollar.
  • USDCNH edged 0.1% lower to 6.7875, following 3 straight days of gains.
  • The resistance remains at the psychological 6.8000 level.

 

USDJPY:

  • Spot 109.99
  • USDJPY remains little changed from yesterday’s close of 109.96, 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 1.2652
  • GBPUSD remains on the back foot today, with the pair 0.4% lower at 1.2639, revisiting Friday’s lows.
  • A clean break below the key 1.2600 handle may drive the pair lower to the next area of support which lie around 1.2350.
  • Alternatively, if rumours of secret talks between the Conservatives and Labour parties in order to secure a softer Brexit prove to be true, a strong rebound of the 1.2600 could materialise.
© Jachin Capital Pte Ltd

UEN: 201419754M


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