March 10, 2017

Daily Observations:

The rout in global government debt continued ahead of the US nonfarm payrolls report due later today, with Treasuries heading for their longest slump in more than 40 years. The US dollar maintained near recent-highs, while gold sank below its $1,200/Oz handle. Asian equities were mixed heading into its close.

US:

  • Initial jobless claims for the week ending Mar. 4 jumped 20,000 to a seasonally-adjusted 243,000, beating analysts’ estimates of 238,000.
  • Former Fed Chairman Ben Bernanke said Fed officials “are communicating that they intend to move next week and intent to continue to gradually normalize interest rates” afterward so long as the economic outlook remains strong, unemployment keeps falling and wage increases pick up. He further added that “so far it seems they’re on a pretty good path”.
  • Bernanke also said he expects the Fed to begin reducing its $4.5 trillion balance sheet “about another year or so from now” after it has raised rates further away from the so-called zero lower bound. He also endorsed Yellen’s strategy of shrinking the balance sheet by allowing the Fed’s bond holdings to roll off as they mature and not using it as an active tool of monetary policy.
  • The US dollar maintained near 1-month highs earlier today, ahead of tonight’s nonfarm payrolls report. The Bloomberg Dollar Spot Index closed 0.1% higher in New York last night and added a further 0.1% earlier today.
  • US yields continue to rise ahead of a fully-priced in Fed hike next week, with the benchmark 10yr yield gaining 5bps to 2.61% overnight, and a further 1bp to 2.62% earlier today.
  • US markets edged marginally higher; the S&P 500 Index added 0.1%, helped on by gains in the health care and energy stocks.

Europe:

  • The ECB kept rates and stimulus settings on hold, as expected, and stuck to its “forward guidance” that interest rates will stay low, or lower, beyond the end of the current asset-purchase program in December. ECB President Mario Draghi adopted a slightly hawkish tone in his speech, acknowledging the upbeat economic outlook by adding later that it’s less likely that rates will have to be cut, and that there’s no longer a “sense of urgency” in monetary policy.

China:

  • PBOC Governor Zhou Xiaochuan said the yuan’s rate should be relatively stable this year even as rising US interest rates contribute to foreign exchange volatility. He further added that in the short-term interest rate differentials drove FX trading, but longer term it’s the economic fundamentals that matter.

Singapore:

  • Retail sales in January slipped 1.5% month-on-month and gained 2.0% year-on-year, with the former missing estimates of a 0.7% gain and the latter surpassing the median consensus of a 0.8% rise.
  • The Singapore government is easing some rules in the property market after a 3-year decline in home prices. Sellers’ stamp duty will now only be payable on residential properties sold within 3 years of being purchased, instead of 4. The rate of duty will also be lowered to 4% for properties sold in the third year, and to a maximum of 12% for houses sold within 1 year.

Precious Metals:

  • Spot gold extended losses earlier today, declining 0.7% to $1,196.94/Oz and looks set to fall for the tenth consecutive session as investors contend with a stronger dollar and await further clues on how many US rate-hikes will follow the first tightening of 2017 which is widely expected to occur next week.
  • With the $1,220/Oz level breached, the next bastion of support lies at $1,180/Oz, last reached at the end of January.
  • Silver for immediate delivery mirrored gold’s drop, slumping by as much as 1.6% to $16.8742/Oz; the metal is poised to extend its losing streak to 7 consecutive sessions.

Oil

  • Crude oil futures expiring in April extended its slump last night, falling 2.0% to $49.28/bbl, closing below the $50/bbl handle for the first time since 29 Nov. last year. Futures pared some declines in Asia this morning, advancing 10% to $49.79/bbl.
  • The recent slump in oil was mainly due to data indicating US inventories have risen to a record for 4 straight weeks, while output has surged to the highest in more than a year.

 

USDSGD:

  • Spot 1.4188
  • USDSGD declined 0.2% to 1.4178, with the pair capped at its 100-day moving average or 1.4200 handle.
  • In a recent note to clients, Credit Suisse expects USDSGD to reach 1.4500 in 3 months, and 1.4800 in 12 months, citing the Fed’s likelihood to raise rates 3 times this year as the main driving factor of the currency pair. The bank also doesn’t expect MAS to ease at its next meeting in April as concerns over deflation and a hard landing in China have ebbed.

 

AUDUSD:

  • Spot 0.7528
  • AUDUSD rebounded off its 0.7500 handle, advancing by as much as 0.4% to 0.7528 earlier.

 

USDCAD:

  • Spot 1.3501
  • USDCAD looks set to snap a 9-session losing streak, after slipping 0.2% to 1.3496 earlier today.
  • The 1.3600 resistance level is next in line to be tested; the pair should be supported around the 1.3400 level.

 

USDCNH:

  • Spot 6.8978
  • The PBOC earlier set its daily reference rate little changed 6.9123 to the dollar.
  • USDCNH rose 0.2% to 6.9142, bouncing off the key 6.9000 support level in the process.

 

USDJPY:

  • Spot 115.43
  • USDJPY gained 0.7% to 115.46, its highest level since January, following Wednesday’s strong ADP report which lead to increased expectations that tonight’s official payrolls data will be a solid headline number and eventually help the greenback to extend its recent upward trajectory.

 

GBPUSD:

  • Spot 1.2157
  • GBPUSD remained largely unchanged, maintaining near its fresh 7-week low of 1.2135 reached last night.
  • The pound remains under pressure nonetheless, as Brexit concerns have resurfaced recently in response to lawmakers seeking to amend the Brexit bill, which could lead to unexpected delays in the negotiations to leave the EU. Despite these recent developments, PM May has reiterated her intentions to trigger Article 50 by the end of the month.
  • It is getting increasingly likely the currency pair will test the key 1.2000 again over the near-to-medium term.
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