Spot values at a glance:
Oil reversed an advance while the yen strengthened and gold extended gains. Asian equity markets were mostly higher after yesterday’s declines. The oil rout is raising the chance that inflation will be harder come by, pushing longer-term Treasury yields lower.
- Philadelphia Federal Reserve President Patrick Harker said it is “prudent” to “pause on the next rate increase” and see how markets react to balance sheet unwinding which he hinted could begin in September.
- Top US banking regulators are sprinting to ease the Volcker Rule, stress tests and other constraints on Wall Street after the Trump administration issued a long list of proposals last week for rolling back post-crisis financial rules. Fed officials Jerome Powell and Keith Noreika plan to voice their support of the revamps.
- Hedge funds and other large speculators this week kept ploughing money into curve-flatteners, or wagers that the yield spread between short- and long-term Treasuries will narrow. The gap from 10 to 30yr Treasuries has shrunk for 11 straight days – something which has not happened since 1992, Bloomberg news reported.
- The persistence of the latter indicates growing conviction in the bond market the Fed will continue on its path of raising rates, even in the face of disappointing economic data and dialled-back inflation expectations, with lowering inflation expectations supressing the long-end of the yield curve, and increased probability of more Fed hikes to come pushing up the shorter-end of the curve.
- The benchmark 10yr Treasury yield edged 1bp lower earlier today to 2.15%. The 30yr Treasury yield reached a year-to-date low of 2.72%, while the 2yr Treasury yield hovered around 1.34%, just 6bps off a 2017 high of 1.40%.
- The US was slightly weaker across the board, with the Bloomberg Dollar Spot Index 0.1% lower earlier today.
- The S&P 500 Index edged 0.1% lower overnight, dragged lower by energy and industrial shares. Tech and biotech shares soared, propelling the Nasdaq Composite higher by 0.7%.
- BOE’s chief economist Andy Haldane said the economy has proved to be “significantly more resilient” than expected and inflation has picked up. He added that the risks of leaving policy tightening too late are rising and that he considered a vote for a rate increase as early as June.
- Prime Minister Theresa May is headed to Brussels to address her plans to EU counterparts regarding the issue of expats’ rights after Brexit. A Bloomberg report stated the plan is widely expected to fall short of expectations and could lay bare the division between the EU and the UK.
- MSCI Inc. announced Tuesday China’s domestic equities will join its benchmark indices. The decision will give China’s $6.9 trillion stock market a bigger role in everything from ETFs to retirement plans and advances President Xi’s ambitions to make the yuan a global currency.
- China’s locally-traded A shares will comprise just 0.7% of MSCI’s global emerging-market gauge, with 222 companies being added. The weighting could increase over time if the country enacts further reforms.
- The inclusion will be done in 2 steps – first in May 2018, and the second in August 2018.
- BOJ Deputy Governor Kikuo Iwata said monetary easing is still necessary in Japan to meet the central bank’s price target, and that he doesn’t “at all” think that it’s time to reduce the level of monetary accommodation by raising interest rates.
- Spot gold rebounded 0.5% to $1,254.02/Oz earlier, as oil’s recent slide below $45/bbl has increased speculation that the Fed may balk at further raising rates due to a weaker inflation outlook.
- The support around the $1,240/Oz is coming into play, and 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 looks set to snap a 5-day losing streak, rising 1.0% higher to $16.6558/Oz.
- Crude oil futures expiring in August held its slide into a bear market earlier today, after closing 2.3% lower at $42.60/bbl in New York, amid speculation rising US output will blunt OPEC-led efforts to trim a global glut.
- US oil production increased to the highest since Aug 2015, according to an EIA report. Brent in London entered a bear market yesterday.
- After Mohammed bin Salman’s appointment as crown prince of Saudi Arabia, energy markets could be bracing for an even more assertive Saudi Arabian foreign policy that could threaten regional stability. The crown prince had intervened last year to sink a deal to freeze participation because Iran had refused to participate.
- Spot 1.3891
- USDSGD remained little changed, with the pair steadying around the 1.3900 handle following its recent rise off the 1.3800 support last week.
- Spot 0.7550
- AUDUSD continues to face bearish pressure amid weakening commodity prices. The pair declined 0.4% to 0.7541 earlier, its lowest level in more than a week.
- Spot 1.3324
- Sustained pressures on crude oil has once again begun to weigh heavily on the energy-linked Canadian dollar, even though the loonie has recently enjoyed significant strength on the back of hawkish comments from central bank officials last week.
- USDCAD gained 0.5% to 1.3348 last night to test the pair’s 200-day moving average.
- Spot 6.8309
- The PBOC earlier left its fixing rate little changed at 6.8197 per US dollar.
- USDCNH edged 0.1% higher to 6.8345, with the pair poised to close higher for the seventh consecutive day – its longest run in 8 months.
- Further upside may be capped, with a key resistance level lying at 6.8450.
- Spot 111.12
- USDJPY reversed an overnight gain, sliding earlier this morning by 0.3% to 110.95 as investors consider the possibility of a delay in Fed-led rate hikes this year following a recent selloff in oil.
- Spot 1.2672
- GBPUSD gained 0.5% to 1.2710 overnight following hawkish comments from Haldane, but the momentum quickly ran out of steam on account of the uncertainty ahead of May’s Brussels visit.