June 30, 2017

Daily Observations:

Most Asian equities fell today, following an overnight selloff in US indices. The US dollar extended loses with bonds as central banks worldwide shift toward more hawkish tones. Crude oil extended gains, while gold slipped.

2017 First Half Overview:

• Global stocks enter the second half of the year ahead of all major asset classes, with the MSCI All-Country World Index wrapping up its best first half in 19 years. Coming in a close second: the euro, which has climbed on bets the European Central Bank is preparing to unwind stimulus. Oil, meanwhile, entered its first bear market since August amid an oversupply of crude.
  

US:

• US GDP in the first quarter this year grew at an annualized 1.4% quarter-on-quarter, faster than the prior growth and median estimate of 1.2%.
• Personal consumption over the same period rose 1.1%, more than the 0.6% predicted. Core PCE rose 2.0% from the previous quarter, less than the 2.1% expected.
• The Trump administration took steps Thursday to penalize a Chinese bank Bank of Dandong, a Chinese shipping company and 2 Chinese citizens in an attempt to cut off North Korea’s access to the international financial system, in a bid to ratchet up pressure on North Korea to halt its nuclear program by targeted Chinese entities that the administration said enable Kim Jong Un’s regime.
• The Trump administration’s restrictions on refugees and visitors from six Muslim-majority countries with will go into effect on Thursday night in the U.S., with officials predicting an orderly rollout. A Supreme Court decision earlier this week partly revived the travel ban, which had been blocked by lower courts. The onus was on federal agencies to figure out what constitutes a “bona fide” connection to the U.S., a status that exempts travellers from the restrictions. Some but not all family members of people living in the U.S. qualify for exemption, as well as businesspeople who have had a formal, documented relationship with U.S. parties.
• The USD continued its selloff, amid increasingly hawkish tones from central bankers around the world. The Bloomberg Dollar Spot Index fell 0.2% lower in New York, and declined a further 0.1% in Asia trade.
• A global bond selloff resumed, driving US Treasury yields higher across the curve. Longer-termed yields rose more, steepening the yield curve. The benchmark 10yr Treasury yield gained 4bps to 2.27%, briefly reaching a 1-month high.
• The Nasdaq 100 plunged 1.7% to a 7-week low on Thursday as investors rotated into banks, which were cleared by the Fed’s stress test to embark upon massive share repurchase programs. The S&P 500 Index fell 0.9%, logging its biggest 1-day decline since May as tech shares resumed its selloff.

Europe:

• German Chancellor Angela Merkel took thinly-veiled swipes at Trump and Britain’s plan to leave the EU ahead of next week’s G-20 summit in Hamburg. Anticipating a potentially tense meeting, she said, “the discord is obvious and it would be dishonest to paper over the conflict.”

Japan:

• Core CPI in June crept higher for a fifth straight month, rising 0.4% year-on-year and maintaining its prior month’s increase; it fell short of economist’s expectations of 0.5% though. Current inflation numbers remain far from the BOJ’s 2% target.
• The unemployment rate rose to 3.1% in May, from 2.8% in April.
• Industrial production in May slipped 3.3% from a month earlier and gained 6.8% from a year ago, falling short of the respective 3.0% and 6.9% gains predicted.

China:

• Official manufacturing PMI in June rose to 51.7, up from 51.2 in May, and exceeding the median estimate of 51.0. Non-manufacturing PMI gained as well, rising to 54.9 from 54.5.
• Economic activity this year has proven to be more robust than expected, giving policy makers room to focus on reining in financial risks and cooling a frothy property sector. Firmer global trade is boosting corporate profits and hiring, easing fears that efforts to cut excessive financial borrowing could derail the government’s target of 6.5% expansion in output.
  

Singapore:

• The Monetary Authority of Singapore said it’s not yet time to ease property curbs and the adjustments made by the government in Match don’t signal an unwinding of the measures. The central bank’s managing director Ravi Menon said mortgage rates are very low and “the risk of a renewed unsustainable surge in property prices is not trivial”.
• The Monetary Authority of Singapore will start offering grants to offset costs incurred by issuers seeking credit ratings for Singapore dollar-denominated bonds, according to a central bank statement Friday. “MAS would like to see a higher share of rated issuances in the SGD bond market,” the regulator said, referring to Singapore dollar notes. “Currently only about half of the outstanding volume of SGD bonds are rated.”

Precious Metals:

• Spot gold retreated 0.5% in its previous session, and fell by as much as another 0.5% last night to $1,239.85/Oz before erasing most of its decline earlier today. The precious metal is poised for its first monthly decline this year, as central bankers from Europe to the US affirmed that interest rates are heading higher, damping demand for zero-yielding assets such as gold.
• The 200-day moving average continues to act as a steady form of support, although upside momentum seems to have stalled following increasingly hawkish tones from central bankers around the world.
• 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 fell 1.2% to $16.6071/Oz, retreating from a 2-week high the day before. A break below the $16.25/Oz level would signal a technical breakout of the multiyear wedge pattern formed since end 2015.

Oil

• Crude oil futures expiring in August rose 0.4% overnight and a further 0.9% in Asia trade today to $45.33/bbl, stretching its longest run of gains in more than 2 months.
• US crude output last week fell by the most in almost a year amid field maintenance in Alaska and tropical storm Cindy, while stockpiles posted the smallest gain in 2017.
• OPEC and its partners don’t plant to discuss deeper cuts when they meet next month, according to the UAE.

USDSGD:

• Spot 1.3770
• Following its lowest close since 11 Oct last year, USDSGD retreated further today, falling another 0.2% to 1.3767 earlier amid broad US dollar weakness.
• The next support at 1.3700 looks likely to be tested soon.

AUDUSD:

• Spot 0.7691
• AUDUSD gained 0.5% to an intraday high of 0.7712, before paring back below the 0.7700 handle earlier today.
• The top boundary of the pair’s range since April 2016 is likely to be tested soon, and further resistance is expected between 0.7700 and 0.7750.

USDCAD:

• Spot 1.2989
• USDCAD looks poised to decline for a sixth straight day, falling earlier by 0.3% to 1.2989.
• The immediate support lies around the psychological 1.3000 level, with the 9-month low reside at 1.2972.
• Having fallen almost 4% in 3 weeks, the currency pair looks to be oversold at the moment. A bounce back to 1.3100 is expected.

USDCNH:

• Spot 6.7732
• The PBOC strengthened its fixing rate by 0.29% to 6.7744 per US dollar, the strongest in 7 months.
• USDCNH extended its recent drop, falling a further 0.5% to 6.7592 earlier.
• Onshore yuan is headed for its biggest quarterly gain in 9 years amid dollar weakness and suspected PBOC intervention, falling to a 7-month low of 6.7622 earlier.

USDJPY:

• Spot 112.02
• USDJPY reversed its previous session’s gains, falling 0.7% to 111.73 earlier today amid a fresh wave of global risk aversion trade, as depicted by an overnight selloff in the US equity markets.
• Upside bias for the currency pair remains, as once the US dollar halts its selloff, the currency pair should manage to move higher towards the 113 handle.
• The downtrend line since January this year looks likely to be tested again soon; a convincing break above 113 should render the trend line broken.

GBPUSD:

• Spot 1.3016
• GBPUSD extended its bullish run, gaining 0.5% to 1.3030 today. The pair looks set to increase its winning streak to 7 straight sessions.
• The 9-month high of 1.3050 looks likely to be tested soon. The pair looks to be overbought for now, with a correction down to the 1.2850 handle likely before making further moves to the upside.
• All eyes will be on the GDP numbers due later today.