March 1, 2017

Daily Observations:

Dollar and equity bulls found little cause for concern in Donald Trump’s address to Congress despite a lack of details, allowing investors to turn their focus on the timing of a US interest-rate hike. Asian stocks maintained gains, while the US dollar strengthened following hawkish comments from Fed officials. Gold slid for the third consecutive day.

US:

  • GDP in 4Q last year expanded 1.9% from the previous quarter, falling short of the 2.1% expansion predicted by economists but keeping pace with 3Q’s growth.
  • Core PCE last quarter gained 1.2% quarter-on-quarter, slightly worse than the forecasted 1.3%.
  • Personal consumption over the same period rose 3.0%, exceeding the 2.6% expected.
  • Wholesale inventories in January slipped 0.1% from a month earlier, missing the 0.4% gain projected by analysts surveyed by Bloomberg.
  • The Conference Board’s consumer confidence index rose to 114.8, from 111.6 prior, beating the median estimate of 111.0.
  • New York Fed President William Dudley said the case for tightening had become “a lot more compelling” in recent months as “the risks to the outlook are now starting to tilt to the upside”.
  • His remarks followed comments from San Francisco Fed chief John Williams, who said he expects an interest-rate increase to receive “serious consideration” at the March 14-15 Fed meeting.
  • Based on Fed funds futures pricing on Bloomberg, the odds of a March rate-hike rose to 52%, up from 36% a week ago.
  • Earlier today, in his speech to Congress, President Trump offered few new proposals and made no suggestions on how he would pay for his plans which include a replacement of Obamacare, a tax overhaul offering cuts for the middle class, $1 trillion in infrastructure investment and a large increase in defence spending.
  • His hour-long speech outlined an agenda that began with a strong national defence, including a ruthless pursuit of ISIS and aggressive enforcement of immigration laws. He did not mention Russia, the federal deficit, banks, financial regulations or college education.
  • The USD was stronger today, with the Bloomberg Dollar Spot Index gapping higher by as much as 0.5%.
  • US yield rose following hawkish comments by Fed officials Dudley and Williams; the benchmark 10yr Treasury yield rose 3bps to 2.42% today after closing 2bps higher at 2.39% in New York.
  • The S&P 500 Index declined 0.3%, while the Dow Jones Industrial Average snapped its record of 12 consecutive daily gains.

Japan:

  • Capital spending last quarter rose by 3.8% year-on-year, beating expectations of a 0.8% gain.
  • Last month’s manufacturing PMI slipped to 53.3, from 53.5 in January.

Australia:

  • 4Q GDP grew 1.1% quarter-on-quarter, swinging back to positive territory following a 0.5% 3Q contraction; economists had predicted a 0.8% expansion. Year-on-year, GDP expanded 2.4%, better than the 2.0% expected. Household spending rose 0.9% from a quarter ago, adding half a percentage-point to growth.
  • Increased consumer spending was mainly driven by a reduction in household savings ratio; with household debt at a record high, it will be debatable whether current levels of consumer spending can be maintained.

China:

  • Manufacturing PMI last month rose to 51.6, from 51.3 in January, beating the consensus estimate of 51.2. Non-manufacturing PMI slipped to 54.2 from 54.6 prior.
  • The Caixin China manufacturing PMI advanced to 51.7 from 51.0 prior, surpassing the median forecast of 50.8.

Precious Metals:

  • Spot gold declined 0.8% to $1,242.54/Oz earlier following an increase in the odds of a March rate-hike amid hawkish comments from Fed officials Williams and Dudley.
  • Recent signs of a technical exhaustion may be a cause for worry for gold investors; a fall back below $1,220/Oz could signal that the rally gold experienced since end-December might be a correction instead, which could potentially lead to a decline back to the lows around $1,130/Oz.
  • Silver for immediate delivery erased gains of as much as 1.1% and failed to test the $18.5000/Oz handle.

Oil

  • Crude oil futures expiring in April was largely unmoved ahead of an API report later today expected to show US stockpiles rose to a record last week. Futures fell 0.2% to $53.90/bbl earlier this morning.

 

USDSGD:

  • Spot 1.4099
  • USDSGD rebounded off the key 1.4000 support, gaining 0.8% to 1.4107 earlier amid broad USD strength today.
  • The currency pair has broken below its 100-day moving average and is currently supported at the 1.4000 psychological level.

 

AUDUSD:

  • Spot 0.7657
  • AUDUSD slid 0.4% to 0.7637, the lowest level in almost 2 weeks, on the back of a stronger US dollar today.
  • Despite its move from 0.7200 in end-December last year, the currency pair is beginning to show signs of exhaustion; a retracement back to the 0.7500 support is possible over the medium-term.

 

USDCAD:

  • Spot 1.3317
  • USDCAD extended upon yesterday’s rally, surging 1.0% earlier to a 1-month high of 1.3325.
  • Having broken beyond the 1.3200 level, the next resistance target lies at 1.3400.
  • With the Bank of Canada’s rate decision due tonight, any surprise rate cut or more-dovish-than-expected statement could send the loonie weaker and the currency pair towards December’s high of 1.3600.

 

USDCNH:

  • Spot 6.8690
  • The PBOC earlier weakened its daily reference rate by 0.07% to 6.8798 to the dollar.
  • USDCNH climbed 0.3% to 6.8741, rising above its 50-day moving average for the first time since Jan 11th.
  • The currency pair has been largely in consolidation phase for most part of the year so far, with movements constrained within the range of 6.8000 to 6.9000.
  • The 6.8000 remains as a significant support level.

 

USDJPY:

  • Spot 113,47
  • USDJPY jumped 1.2% to 113.62, rebounding off its 100-day moving average support in the process.

 

GBPUSD:

  • Spot 1.2375
  • GBPUSD declined to near 1-month lows, falling 0.6% to 1.2363 earlier today.
  • A break below the February-low of 1.2350 could drive the currency pair to around 1.2100 – 1.2200 levels.
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