June 30, 2016

Daily Observations:

Calm has seemingly returned to global financial markets with the Dow Jones Industrial Index closing +1.64% at 17,694 last night. According to some equity analysts a continuation of this uptrend puts a re-test of the last major resistance of 18,000 in sight. However, we don’t think we are out of the woods yet. Although the major European bourses closed in positive territory yesterday (Euro Stoxx 50 +2.66%; DAX +1.75%; FTSE100 +3.58%), these have opened today at either flat or slightly negative levels. Our view is that the bounce in markets this week is mainly due to short covering and of course, optimism that central banks will (again!) follow through with more easing.

George Soros told the European Parliament in Brussels today that Brexit has “unleashed” a financial markets crisis that bears similarity to that of 2007-2008. He said “This has been unfolding in slow motion, but Brexit will accelerate it. It is likely to reinforce the deflationary trends that were already prevalent.”

Quick Round Up

  • Latest release of US crude oil inventory data showed 4 million barrels were drawn down the week ended 24 June 2016. Crude oil stockpiles are now at the lowest levels since March this year. Coupled with a third consecutive weekly fall in oil output, this has propelled the price of WTI crude for August delivery to US$49.35/bbl currently. But, Goldman Sachs cautioned last night that recovering production in Nigeria puts the US$50/bbl forecast for 2H 2016 at risk.
  • Despite long positioning and recovery in risk sentiment, gold continues to hold its ground. However, the metal (now at US$1,319.25/oz) is likely to face resistance in  moving higher. Near term support comes in at US$1,320/oz with next support at US$1,303/oz. Resistance lies at US$1,335/oz currently.
  • The Gold-Silver ratio (at 71.71) is close to its long-term support at 71.30. What this implies is that silver (at US$18.40/oz) may outperform gold going forward. Silver’s long term resistance lies at US$18.45 – US$18.65/oz.

USDSGD

  • Spot 1.3491
  • Moody’s just downgraded the outlook for Singapore banks from stable to negative citing concerns about softer domestic and regional economic activity and trade growth.
  • Moody’s also lowered the forecast for Singapore’s GDP growth for 2016 to 1.6% which is at the lower end of the Singapore government’s forecast of 1.0% to 3.0% for the year. China’s slowdown is cited as a significant challenge to Singapore’s growth prospects. The government’s restructuring programme have in Moody’s opinion yielded mixed results so far.
  • Singapore’s Aaa rating remains unchanged given its high per capita income levels, economic competitiveness and strong fiscal metrics. On this score, Singapore’s fiscal buffers are said to be strong given the government’s prudent fiscal rules that focus on a balanced budget for each term of government.

AUDUSD

  • Spot 0.7440, just below the 100 Day Moving Average of 0.7457
  • Resistance at 0.7473, then 0.7500.
  • Support at 0.7400 before 0.7345.

USDCAD

  • Spot 1.2946
  • Higher crude oil prices are benefiting the currency.
  • Resistance 1.3190; support 1.2935, 1.2850

USDCNH

  • Spot 6.6676
  • PBoC fixing this morning for on-shore yuan at 6.6312 vs 6.6324 yesterday.
  • The currency has dropped 3.2% this past quarter. Anticipated increase in capital outflows continue to support analysts forecast for CNH to end the year at 6.7000.
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