June 27, 2017

Daily Observations:

Most Asian equities gained, despite poorer-than-expected economic data in US overnight, as investors turn their attention to an upcoming address by Fed Chair Janet Yellen. Oil held gains, while gold slipped following an apparent “fat finger” erroneous trade.

US:

• Durable goods orders in May slid 1.1%, accelerating upon a 0.9% drop in the prior month and falling more than the consensus estimate of 0.6%.
• The Dallas Fed manufacturing activity index fell to 15.0 in June, from 17.2 last month; economist had predicted a reading of 16.0. The Chicago Fed national activity index in May declined to -0.26, from 0.57 in April; the median estimate was 0.20.
• The US Supreme Court cleared much of President Donald Trump’s travel ban to take effect this week and agreed to hear arguments in the fall, giving Trump at least partial vindication for his claims of sweeping power over the nation’s borders. The ban on people entering the US from 6 mostly-Muslim countries can be applied for now to everyone except people who have a “credible claim of a bona fide relationship with a person or entity” in the US, the justices said Monday in an unsigned opinion.
• Federal Reserve policy maker John Williams made the case on Monday for further gradual increases in interest rates, saying he expects inflation to rise to the central bank’s 2% target next year as unemployment edges lower.
• The US dollar was steady, with the Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, snapping a 3-day losing streak and rising 0.1% in New York yesterday.
• Treasuries advanced following a softer-than-expected durable goods orders last night; the benchmark 10yr Treasury yield declined by as much as 2bps to 2.12% last night before closing the session at 2.14%. The yield spread, the difference between longer- and shorter-termed yields continued to narrow, with the yield curve continuing to flatten.
• Selling in technology shares continued last night, as the Nasdaq Composite ended 0.3% lower. The benchmark S&P 500 Index was largely unchanged, as weakness in tech shares were offset by strength in financial and consumer stocks.

UK:

• Prime Minister Theresa May’s promises on the rights of EU nationals in the UK post-Brexit aren’t good enough, according to officials in Brussels. Chief EU negotiator Michel Barnier tweeted that “more ambition, clarity and guarantees” were needed following May’s address to Parliament in order to resolve an issue that’s delaying trade discussions between the 2 parties.
• On Monday, May formally sealed a deal with the Northern Irish Democratic Unionist Party to support her minority government key votes.

Italy:

• Italian stocks and bonds jumped after the government announced the country’s biggest bank rescue to date on Sunday evening as it committed as much as 17 billion euros to clean up 2 failed institutions – Banca Popolare di Vicenza and Veneto Banca.

China:

• Industrial profits rose 16.7% in May from a year earlier as global demand improved, helping to fill companies’ order books; May’s reading was an improvement from the 14.0% rise in April.
• According to a Bloomberg report, economists forecast slower factory inflation in China in the second half this year, which would dent industrial profits and further erode the global reflation process that had been underway since last year. Still, exports remain robust as demand in US and European markets improves, helping to boost economic sentiment.

Precious Metals:

• Spot gold fell by as much as 1.6% yesterday to $1,236.43/Oz, accompanied by a huge spike in volume in gold futures which trader say may have been a result of a “fat finger” erroneous order. Trading jumped to 1.8 million ounces of gold in just a minute, an amount that’s bigger than the gold reserves of Finland. Gold failed to erase its declines though, ending 1.1% lower at $1,242.98/Oz in New York.
• Support around the $1,240/Oz continues to remain resilient, 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 ended lower as well, retreating 1.1% to $16.5293/Oz overnight.
• Gold is most expensive relative to silver in more than a year. The metal is little changed in the second quarter while silver lost 9%. The current gold-silver ratio is about 75, which is above the 10-year average of 62.5.

Oil

• Crude oil futures expiring in August rose for a third straight day, ending its session last night 0.9% higher at $43.38/bbl, ahead of US government data due tonight which is expected to show inventories dropped by 2.25 million barrels last week.
• Shale producers in the US Permian basin will be able to make money even if the price falls to the mid-$20s, according to Scott Sheffield, chairman of Pioneer Natural Resources Co.
• Strong support was seen at the $42/bbl level last week; further consolidation is expected between here and the previous support at $44/bbl.

Autonomous Cars:

• Deals between 2 of the world’s tech giants and auto rental companies were revealed on Monday, moves which could eventually shape the future of transportation. One will see Avis Budget Group Inc. manage Alphabet’s fleet of autonomous vehicles, while another sees Apple Inc. lease vehicles from Hertz Global Holdings Inc. to test its self-driving technology.
• On a more traditional front, General Motors Co. said that light vehicle sales will likely total in the low 17 million range, down modestly from 2016.

Cryptocurrency:

• Digital currencies got crushed Monday, with bitcoin falling as much as 17% at its lows of the day, while smaller competitor ether continued to slide after experiencing a “flash crash” last week. Ether, the virtual currency based on the ethereum blockchain, plunged 26%.

USDSGD:

• Spot 1.3874
• USDSGD declined 0.1% to 1.3868, as the currency pair continues to move lower after failing to break above the 1.3900 handle last week.
• According to UOB, the Monetary Authority of Singapore is expected to maintain its current dovish monetary policy stance at its next meeting in October; the bank is expecting USDSGD to rise to 1.42 by the end of the year.

AUDUSD:

• Spot 0.7588
• AUDUSD rose 0.4% to 0.7599, and looks likely to test its 2-month high of 0.7636 soon, last reached in 15 Jun.
• The 200-day moving average, currently at 0.7530, continues to provide strong support.

USDCAD:

• Spot 1.3254
• USDCAD reversed an overnight decline, bouncing off the 1.3200 support, and was 0.1% higher at 1.3261 earlier today.
• A recent rebound in crude oil prices has provided some support for the Canadian dollar.

USDCNH:

• Spot 6.8473
• The PBOC weakened its fixing rate by 0.11% to 6.8292 per US dollar, the weakest fixing this month.
• USDCNH reversed an earlier rise to its highest level in a month, falling 0.1% to 6.6473, and looks likely to snap a 9-day winning streak.
• The pair is currently trading near its 200-day moving average, having crossed it yesterday only for the second time since Dec 2014.

USDJPY:

• Spot 111.89
• USDJPY advanced 0.4% to as high as 112.08 earlier, ignoring weak US durable goods orders data and a flattening yield curve as investors fear the Fed may continue to push forward with policy normalization as suggested by the Bank for International Settlements (BIS).

GBPUSD:

• Spot 1.2725
• GBPUSD erased previous day’s gains, falling 0.2% to 1.2711, as investors await the release of BOE’s Financial Stability Report (FSR) and Governor Carney’s speech for the next direction.
• The currency pair continues its consolidation phase between the 1.2600 and 1.2800 handles.