June 2, 2017

Daily Observations:

Most Asian stocks rose, led by US equities which advanced overnight to fresh records. The dollar strengthened and Treasuries fell as a spike in private hiring data bolstered optimism in the economy before tonight’s nonfarm payroll report. Crude oil and gold declined to 1-week lows.

US:

• The ADP employment change in May was 253,000, higher than the 174,000 gain in April and median consensus of 180,000. May’s increase was the fastest pace of growth since 2014, and may indicate a better-than-expected nonfarm payroll figure later today.
• ISM manufacturing last month ticked higher to 54.9, from 54.8 in April; analysts were expected a reading of 54.8. The Markit manufacturing PMI rose as well, gaining to 52.7 from 52.5 and surpassing the median estimate of 52.5.
• Construction spending in April fell 1.4% from a month earlier, slowing from a 1.1% gain and worse than the 0.5% rise predicted.
• President Donald Trump announced the US would withdraw from the Paris climate pact and that he will seek to renegotiate the international agreement in a way that treats American workers better. His announcement comes after spurning pleas from corporate executives, world leaders and even Pope Francis who warned the move imperils a global fight against climate change.
• Elon Musk, who has become the American icon of clean-energy thanks to electric carmaker Tesla Inc., said Thursday he’d leave 2 white House advisory councils after the president’s announcement to withdraw from the landmark Paris climate accord.
• Fed Governor Jerome Powell said the central bank probably won’t reduce its $4.5 trillion balance sheet by more than $2 trillion over the next 5 years as it normalizes monetary policy. Powell also called for the central bank to continue gradual interest-rate increases.
• The US dollar rallied overnight following better-than-expected economic data last night, as the Bloomberg Dollar Spot Index closed 0.2% higher in New York.
• The benchmark 10yr Treasury yield gained 1bp overnight, and added another in Asian trade this morning.
• The S&P 500 Index reached a new high, climbing 0.8% to 2,430.06, with the financial and healthcare sectors leading gainers.

Canada:

• The Markit Canada manufacturing PMI for May slipped to 55.1, to 55.9 in the previous month.

UK:

• PMI manufacturing in May slipped to 56.7, from 57.3 in April, but still managed to beat the consensus estimate of 56.5.

China:

• The China Caixin manufacturing PMI slipped to contractionary territory, falling to 49.6 in May from 50.3 in April, and missing out on the median estimate of 50.1.

Australia:

• Retail sales in April gained 1.0%, reversing a 0.2% fall in March and exceeding the median estimate of a0.3% advance.

Precious Metals:

• Spot gold declined 0.4% to $1,261.60/Oz earlier today after private American hiring data bolstered confidence in the global economy, ahead of nonfarm payrolls data due later tonight.
• The precious metal continues to be supported around the $1,260/Oz, although a break below could lead to a further decline to its 200-day moving average of $1,240/Oz.
• From a technical analysis point-of-view, a golden cross formed last week, signalling further upside. A golden cross is formed when the 50-day moving average crosses above the 200-day moving average, and has only occurred 4 times in the past 5 years for gold and typically marks a multi-week trend.
• Silver for immediate delivery rebounded from an overnight slump, gaining 0.5% to $17.2159/Oz.

Oil

• Crude oil futures expiring in July declined by as much as 1.1% earlier today to an intraday low of $47.81/bbl, as US crude production expanded to the highest level since August 2015, countering a slide in stockpiles.
• Production rose for the 14^th time in 15 weeks, according to government data Thursday. Inventories dropped by 6.4 million barrels last week, more than double the median estimate in a Bloomberg survey.
• OPEC output climbed in May, led by gains from Libya and Nigeria, countries that are exempt from supply cuts.

USDSGD:

• Spot 1.3860
• USDSGD rose 0.1% to 1.3870, as the Singapore dollar heads for its first weekly loss in a month ahead of US payrolls data tonight amid speculation the Fed will raise rates in 12 days.
• The resistance at 1.3918 remains. To the downside, a break below 1.3800 and the next level of 1.3725 may be tested soon.

AUDUSD:

• Spot 0.7383
• The outlook keeps getting worse for the Aussie dollar, which has crashed more than 3% this quarter to become the worst-performing major developed currency. The Aussie 10yr yield spread against 10yr US Treasuries is at a 15yr low, and that premium may shrink further if US jobs data beat expectations tonight, or if next week’s Australian GDP figures are contractionary.
  
• AUDUSD sank to a 3-week low, falling 0.4% to a low of 0.7373 last night.

USDCAD:

• Spot 1.3515
• USDCAD advanced 0.2% to 1.3527, on the back of a strengthening US dollar and falling commodity prices.
• The resistance at 1.3540 – a 2-week high, represents the next target level for the currency pair.

USDCNH:

• Spot 6.7939
• The PBOC kept its yuan fixing little changed earlier today, at 6.8070 to the US dollar.
• USDCNH rebounded sharply from a 7-month low yesterday, gaining 0.5% to 6.7941 earlier. Nevertheless, the yuan is set for its biggest weekly rise in 10 months amid speculation of central bank support.

USDJPY:

• Spot 111.63
• USDJPY extended previous day’s gains, rising 0.5% to 111.68 earlier on the back of a USD rally.
• The 115 handle is expected to be a region of resistance, while the 200-day moving average of 110 is likely to provide support.

GBPUSD:

• Spot 1.2877
• GBPUSD pared an earlier gain of as much as 0.5%, falling back below the 1.2900 handle.
• UK politics is set to take centre stage in the week to come, with investors likely to keep all eyes on the June 8 election. GBPUSD looks set to maintain within the 1.2800 – 1.3000 range for the time being.