March 13, 2017

Daily Observations:

Asian equities rose, while the US dollar weakened ahead of an important week for global monetary policy settings with central banks in Japan, the US and UK all meeting. Oil fell for a sixth straight day while gold seems to have found some footing around the $1,200/Oz handle.

US:

  • Nonfarm payrolls in February fell to 235,000, from a prior figure of 238,000 which was revised higher, and more than the 200,000 figure estimated by analysts.
  • The unemployment rate fell to 4.7%, from 4.8%, matching expectations. Average hourly earnings growth remained tepid, rising 0.2% month-on-month and 2.8% year-on-year; the consensus estimates were 0.3% and 2.8% respectively. The labor force participation rate ticked higher to 63.0%, from 62.9%.
  • Policymakers have pencilled in 3 quarter percentage-point rate increases for 2017, according to median projections in forecasts released in December. Investors are on alert for a bump up in that forecast when officials release new forecasts on Mar. 15.
  • Friday’s jobs report was the last major piece of economic data before the Fed meets next week, with markets pricing a rate increase as a near certainty. While hiring was robust and wage gains positive, the pace might not be fast enough to force the central bank to accelerate its timeline for future rate hikes from the current forecast of 3.
  • The US dollar sold off heading into the weekend, with the Bloomberg Dollar Spot Index retreating 0.6% to erase most of its week’s gains.
  • US Treasuries gained, as the benchmark 10yr Treasury yield fell back below 2.60%, declining by 4bps to 2.57%.
  • The S&P 500 Index ended 0.3% higher on Friday, paring a weekly slide to 0.4%, as utility shares led gainers.
  • US Treasury Secretary Steven Mnuchin plans to use his debut at a G-20 meeting in Germany next week to drive home the message that the US won’t tolerate countries that engage in currency devaluation to gain an edge in trade, according to people familiar with matter, Bloomberg reported.

Canada:

  • The unemployment rate in February fell to 6.6%, its lowest in more than 2 years, from 6.8% previously; analysts were expecting a reading of 6.8%.
  • 15,300 jobs were added in February, more than the 5,000 decrease expected. Full-time employment rose by 105,000, while part-time employment fell 89,800.
  • The data show a Canadian economy that has begun to deliver new employment after a 2 year slump though concern persists around the quality of those gains as wages are hardly growing and people are working fewer hours.
  • Average hourly earnings were up 1.3% from a year ago, almost half the pace of the post-recession era. Wage gains for permanent workers were up 1.1%.

Europe:

  • According to a Bloomberg news report, ECB policy markets considered the question of whether interest rates could rise before their bond-buying program comes to an end. Governing Council members who met last week exchanged views on ways of communicating and sequencing an exit from unconventional stimulus, euro-area central bank officials said. The council didn’t discuss any specific scenario or timeline and hasn’t made any formal decision on a strategy.

UK:

  • Industrial production in January fell 0.4% from a month ago and rose 3.2% from a year earlier; analysts were predicting readings of -0.5% and 3.2% respectively.
  • Manufacturing production over the same respective periods fell 0.9% and gained 2.7%, missing their median estimates of -0.7% and 2.9%.
  • A Wall Street Journal report over the weekend said that Prime Minister Theresa May could trigger Article 50 tomorrow, after the Brexit Minister Davis called on lawmakers to vote to drop amendments that were added to the Brexit Bill.

Japan:

  • Factory prices gained 0.2% month-on-month and 1.0% year-on-year in February, matching analysts’ expectations.
  • Machine orders in January declined 3.2% from a month earlier and 8.2% from a year ago, worse than the median estimates of 0.1% and 3.7% drops respectively.

China:

  • China is considering attending talks on the TPP in Chile this week, China Daily news reported, citing foreign ministry spokesman Geng Shuang. The paper said the withdrawal of the US from the pact has made other members adjust their stance to welcome China into the group, and that China should integrate TPP with other regional trade pacts.
  • President Trump will likely temper his criticisms of China, including his campaign claim that the country manipulates its currency, Steve Schwarzman, the chairman of Trump’s strategic and policy forum, said in an interview with CNN.

Precious Metals:

  • Spot gold found some support on Friday, paring declines from below its $1,200/Oz handle to settle at $1,204.64/Oz for the week. The precious metal has declined for 10 consecutive sessions, but continued support at the current support level may lead to a reversal.
  • However with the $1,220/Oz level previously breached, the next key bastion of support lies at $1,180/Oz, last reached at the end of January.
  • Silver for immediate delivery found some support as well, with the metal holding above its $17/Oz handle.

Oil

  • Crude oil futures expiring in April extended its slump, falling 1.6% last Friday and a further 1.2% earlier today to a low of $47.90/bbl. Rigs targeting crude in the US rose to the most since Sep 2015, according to data from Baker Hughes Inc. Meanwhile, in Libya, crude production dropped 11% as clashes among rival armed groups led to the closure of some of the nation’s biggest oil export terminals.

 

USDSGD:

  • Spot 1.4124
  • USDSGD failed to hold above its 100-day moving average and 1.4200 handle last Friday, declining 0.6% to end the week off at 1.4126. The pair maintained losses earlier today and was mostly unchanged from Friday’s close.
  • The key support at 1.4000 remains.

 

AUDUSD:

  • Spot 0.7556
  • AUDUSD rebounded off its 0.7500 handle last Friday to close 0.6% higher at 0.7542. The pair extended its rebound earlier today, rising another 0.2% to 0.7559.
  • The recent correction in commodities, and more specifically iron ore, have contributed to AUDUSD’s downtrend since the start of this month.

 

USDCAD:

  • Spot 1.3455
  • Following a better-than-expected jobs report last Friday, USDCAD snapped a 9-day winning streak to end the day 0.4% lower at 1.3471. The pair extended its decline earlier today, falling another 0.2% to 1.3454.
  • The 1.3600 resistance level is next in line to be tested as the bias remains for a stronger US dollar this week ahead of the Fed’s meeting; the pair should be supported around the 1.3400 level.

 

USDCNH:

  • Spot 6.8900
  • The PBOC earlier set strengthened its daily reference rate by 0.20% to 6.8988 to the dollar, from 6.9123.
  • USDCNH declined below the 6.9000 handle, falling 0.2% to a session-low of 6.8804 earlier.

 

USDJPY:

  • Spot 114.83
  • USDJPY failed to hold above its 115 handle Friday, closing 0.1% higher at 114.79. The pair was mostly unchanged earlier today at 114.83.

 

GBPUSD:

  • Spot 1.2179
  • GBPUSD looks to have found some support around the 1.2150 level. The currency pair earlier gained 0.4% beyond the 1.2200 before paring most of it soon after.
  • The pound should continue to remain under pressure nonetheless, as lingering uncertainty over the Brexit process continues to undermine any bullish sentiment.

 

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