June 29, 2016

Daily Observations

Today started with news of three suicide bombers setting off explosions at Istanbul airport Tuesday night. Latest reports put the death toll at 36 with as many as 150 people wounded. The Ataturk international airport resumed operations at 8am Singapore time.

  • Brexit Updates:
    • Citing forecasts of lower credit demand, higher losses from non-performing loans and volatile funding/liquidity conditions for UK banks arising from slower growth and uncertainty over the UK’s future trade relations with the EU, Moody’s altered their ratings outlook for 12 UK based banks last night. Barclays, HSBC, Santander UK and TSB Bank are downgraded to negative from stable. In addition, the outlook for UK government guaranteed senior unsecured debt instruments is now negative.
    • Any possibility of reversing the Brexit referendum results was erased by German Chancellor Merkel at the on-going EU meeting in Brussels.
    • The relief rally in risk assets that started yesterday continues in Asia today amid speculation of forthcoming monetary stimulus. In Europe the Euro Stoxx 50 is up 1.76% followed by the FTSE100 at +1.72% and German DAX at +1.25%.
  • US GDP growth marginally beat expectations at 1.1% QoQ (expectation was 1.0%) with exports and software spending contributing to the better number.
  • US consumer spending was a different story as this was revised lower by US$11.3billion.
  • The risk on mood led to a modest rise in bond yields in both the US and UK. Yield for the US 10 Year Treasury closed at 1.47% last night and the UK 10 Year Gilts rose to close at 0.961%.
  • WTI crude futures for August 2016 delivery is higher today at US$48.50/bbl from a close of  US$47.85/bbl.
  • Gold (XAU) currently trades at US$1,319.55/oz, a touch higher than its close last night at US$1,311.79/oz. Risk on sentiment coupled with extremely long positioning in this asset is likely to lead to a correction lower in price. Our view is for gold price to head towards US$1,275/oz.

USDSGD

  • Spot 1.3488
  • UOB’s latest forecast is for SGD to trade in a broad band of 1.3460 to 1.3660.

AUDUSD

  • Spot 0.7422
  • Australia’s Housing Industry Association’s private home sales report showed a drop of 4.4% m/m in May. This followed the 4.7% decline reported last month. The biggest falls were recorded in New South Wales (-11.5%) and Queensland (-11.0%) with the best sales pick-up in Western Australia (+5.3%).
  • The sluggishness in home sales is expected to push the AUD weaker. However, Friday’s commodity prices report may check this anticipated weakness in the AUD if the results are better than expected.
  • Near term support lies at 0.7360 with resistance coming in at 0.7436.

USDCAD

  • Spot 1.3000
  • If near term support of 1.2946 is breached,  next support for USD lies at 1.2879.
  • Initial resistance at 1.3094 and a rise above this brings in the next level of 1.3175
  • Canada’s April GDP data is scheduled for release tomorrow.

USDCNH

  • Spot 6.6593, CNY fixing was set 0.31% higher at 6.6324 vs 6.6528 yesterday
  • PBoC injected further liquidity by adding 210Bn Yuan through 7 day reverse repos.
  • Traders indicate Chinese authorities intervened in the forex market this morning to shore up USDCNH. The aim reportedly was to maintain stability in CNH and try to head off further capital outflows.

 

 

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