March 7, 2017

Daily Observations:

Asian equities fluctuated around levels just shy of recent peaks as investors continue to assess whether a rally leading up to a near-certain US interest rate increase has run its course. Trading volumes were down across the board. The USD dollar pared some of its overnight’s rally, while gold maintained near 1-month lows.

US:

  • US January factory orders gained 1.2%, rising for the second straight month and exceeding market expectations of 1.0%. Durable goods orders over the same period were positive as well, gaining 2.0% to beat the median consensus of 1.0%.
  • President Donald Trump signed an order restricting entry into the US by people from 6 predominantly Muslim countries excluding Iraq, and takes effect on Mar. 16. Its scope was narrowed to address legal questions raised by federal courts, with the new version specifying that people who have already been issued visas, green-card holders and dual citizens won’t be denied entry.
  • Republicans unveiled their long-awaited legislation to repeal and replace the Affordable Care Act. Called the American Health Care Act, House Republicans’ proposal released Monday would unwind much of Obamacare over the next 3 years. To help people afford insurance, they are proposing a refundable, age-based tax credit. The legislation would also end a requirement to have coverage, and would eventually eliminate many taxes used to fund the 2010 law.
  • The US dollar recovered overnight, with the Bloomberg Dollar Spot Index closing 0.2% higher in New York.
  • The S&P 500 Index retreated in trading that was 12% below the 20-day average, closing 0.3% lower; declines in the materials and financials sectors led losers.
  • In a note to clients, JPMorgan strategists warned of increasing risk in a near-term selloff in US stocks due to more hawkish Fed rhetoric amid a backdrop of stretched investor positioning and at a time when equity volatility is likely to rise from low levels.
  • US yields advanced; the benchmark 10yr Treasury yield ended 2bps higher at 2.50%

Canada:

  • Non-residential business investment has fallen in 8 out of the past 9 quarters, and is down 19% over that time- the biggest 2 year decline since at least 1981.
  • Investment in machinery and equipment now represents 2.7% of GDP – the lowest share of the economy since at least 1981.
  • Statistics Canada released capital spending intentions data that show, outside of real estate and government, companies expect to continue pulling back in 2017. Spending intentions fell in 13 of the 20 categories, the most since the data series began in 2006. It was also the third straight year intentions fell in more than half the surveyed industries.

France:

  • Alain Juppe, a former prime minister who was defeated in the Republican Party primary, said he won’t step in as a replacement candidate in France’s presidential election, following speculation that he will replace his party’s embattled candidate Francois Fillon.
  • Anti-euro nationalist Marine Le Pen is leading in most polls of voting intentions for the first round on April 23, though surveys also suggest she’s likely to lose heavily to the independent Emmanuel Macron in the runoff on May 7.

Australia:

  • The RBA is set to release its policy decision later today and is expected to keep rates on hold at 1.50%, according to a Bloomberg survey. A buoyant outlook may be balanced by stretched housing prices and a national mortgage book.

Precious Metals:

  • Spot gold declined 0.7% to $1,224.18/Oz and looks likely to extend its losing streak to 7 consecutive sessions.
  • Holdings in gold ETFs tracked by Bloomberg fell 0.5% on Friday, the most this year after the implied offs of a Fed hike in March rose to near-100%.
  • The current support at $1,220/Oz remains key, as a fall back below it could signal that the rally gold experienced since end-December might be a correction of a larger downtrend instead, which could potentially lead to a decline back to the lows around $1,130/Oz.
  • Silver for immediate delivery mirrored gold’s drop, falling by as much as 0.7% to $17.7102.

Oil

  • Crude oil futures expiring in April slipped 0.2% to $53.20/bbl in New York and was largely unchanged earlier today as Iraq said it was ready to cut production in the second half of this year if OPEC decides to extend a policy limiting output in an attempt to balance a global oversupply.

 

USDSGD:

  • Spot 1.4118
  • USDSGD rose 0.2% to 1.4113 earlier.
  • A recent rebound off the 1.4000 has somewhat stalled over the past 2 sessions; renewed upside momentum could come into play should the pair manages to break above its 1-week high of 1.4169.
  • The 100-day moving average lies above as well at 1.4200.
  • In a 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 0.7595
  • AUDUSD was little changed, as it continues to be capped at the 0.7600 handle, ahead of the RBA’s policy decision later today.
  • Near-term key support lies at 0.7500.

 

USDCAD:

  • Spot 1.3398
  • USDCAD continues to test the 1.3400 resistance level, trading above it late last night but paring gains back below earlier today.
  • After 1.3400, the next resistance target is at 1.3600.

 

USDCNH:

  • Spot 6.8994
  • The PBOC earlier weakened its daily reference rate by 0.24% at 6.8957, from 6.8790 to the dollar the day before.
  • USDCNH rose 0.2% to 6.9043 earlier today, and looks poised for its highest close since Jan. 11.

 

USDJPY:

  • Spot 113.97
  • USDJPY pared reversed previous session’s declines, gaining as much as 0.3% t0 114.10 last night, helped on by a stronger US dollar.
  • Based on Tokyo Financial Exchange data, Japanese retail investors increased their overall net yen short positions by the most since June last year, amid increasing indications that the Fed will raise rates later this month.

 

GBPUSD:

  • Spot 1.2245
  • GBPUSD resumed its recent decline, falling by as much as 0.3% to 1.2224 overnight.
  • Following a break below the February-low of 1.2350 last Thursday, the pair could continue to fall lower to around 1.2100 – 1.2200 levels.
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