May 17, 2017

Daily Observations:

Growing concerns over the turmoil engulfing US President Trump’s administration weighed on risk appetite and the US dollar, boosting the yen and gold and sending equities lower. Crude oil extend losses.

US:

• US industrial production last month gained 1.0% from a month earlier, the strongest reading in 3 years, accelerating from the prior month’s 0.4% gain and exceeding the consensus estimate of 0.4%.
• White House National Security Adviser H.R. McMaster sought for the second day to contain the damage from a report that President Donald Trump revealed sensitive and highly classified intelligence to 2 senior Russian officials, saying Trump’s disclosure was “wholly appropriate”.
• The New York Times reported yesterday that Israel provided the intelligence Trump divulged to the Russians, which will likely make a tough trip for Trump when he travel to the Middle East next week to meet with Saudi Arabia and Israel.
• Investors have largely looked past the most recent string of negative events that have dogged Trump’s administration, even as the missteps likely add to doubts about his ability to deliver on plans to boost infrastructure spending and cut taxes.
• Technology shares continued to rally overnight, sending the Nasdaq Composite to record highs. The S&P 500 Index reached an intraday record before selling in defensive shares resulted in the benchmark closing 0.1% lower.
• The US dollar continued to sell off, as the Bloomberg Dollar Spot Index falling 0.6% to fresh year-to-date lows, on the back of recent political uncertainty in the White House.
• The benchmark 10yr Treasury yield slipped 1bp in New York last night, and fell a further 4bps to as low as 2.29% in Asia this morning.

UK:

• Inflation in April came in better than expected; CPI rose 0.5% month-on-month and 2.7% year-on-year, accelerating from gains in March and beating the consensus estimates of 0.4% and 2.6% respectively. Core inflation accelerated to 2.4% year-on-year, from 1.8% in March.

China:

• China increased its holding of US Treasuries by the most in 2 years, from $27.9 billion to $1.09 trillion in March, according to a monthly Treasury Department report released yesterday, and continues to remain the second-largest foreign holder of American debt. Adding the $3.7 billion surge in Belgium’s ownership, which is often seen as a home to China’s custodial accounts, the total increase was the biggest since 2014.

Japan:

• Machine orders in March underwhelmed, rising 1.5% month-on-month and falling 0.7% year-on-year, missing median estimates of 2.5% and 1.2% respectively.
• GDP data this week is likely to show the economy eking out 5 straight quarters of expansion, which would be the best run since 2006. Growth has been driven by a strong showing from exporters, aided by a yen that’s back at the more competitive level of a decade ago. Despite this, Japan’s failure to spur inflation continues to generate concerns about the nation’s future.
  

Australia:

• The current month’s Westpac Consumer Confidence index declined 1.1% from 99 a month earlier to 98.
• Wage price inflation during the first quarter this year rise 0.5% quarter-on-quarter and 1.9% year-on-year, matching estimates.

Singapore:

• Non-oil domestic exports in April fell 0.7% year-on-year, missing out on the 13.0$ growth expected and down from the prior month’s gain of 16.5%.
• Electronic exports gained 4.8% from a year earlier, slowing from March’s 5.2% gain and less than the predicted 9.3% rise.
• The slump in exports last month was mainly attributed to the volatile pharmaceuticals sector, which plunged 40%. Shipments of electronics continued to expand.

Precious Metals:

• Spot gold gained 0.9% to $1,245.07/Oz earlier today as growing concerns over the turmoil engulfing President Trump’s administration cut appetite for risk. However higher interest rates expectations continue to weigh on the precious metals’ market sentiment, and a wave of renewed selling could creep in around the $1,250/Oz handle, where gold’s 200-day moving average resides.
• The key support is at $1,200/Oz, last tested 2 months ago.
• Silver for immediate delivery continued its rebound, rising by as much as 1.4% to $16.9431/Oz earlier.

Oil

• Crude oil futures expiring in June corrected following an impressive rally over the past week, declining 1.3% to $48.03/bbl earlier today after the American Petroleum Institute was said to report that inventories rose last week.
• Elsewhere, Iraq Prime Minister Haider al-Abadi said the nation is committed to cut its share of output for an additional 6 months to achieve better prices.

USDSGD:

• Spot 1.3941
• USDSGD looks poised for its fifth straight session decline after sliding 0.3% to 1.3937 earlier.
• With the 200-day moving average breached, the next are of support resides at 1.3900, which was tested twice over the last 2 months.

AUDUSD:

• Spot 0.7418
• AUDUSD retreated from an overnight rise of as much as 0.5% due to a broad risk-off sentiment this morning, and in spite of a stronger-than-expected yuan fix by the PBOC and an uptick in wage price inflation in Australia.

USDCAD:

• Spot 1.3600
• USDCAD fell 0.5% to 1.3575 overnight before paring back to the 1.3600 handle earlier today, as USD weakness outweighed the effects of weaker crude oil prices.
• The pair continues to remain supported at the key 1.3600 level, having broken above it at the end of last month. The price momentum continues to remain to the upside over the longer term, with an ascent up to 1.3800, then 1.4000, a possibility.

USDCNH:

• Spot 6.8763
• The PBOC earlier strengthened its daily reference rate by 0.23% to 6.8635 per US dollar, stronger than expected according to forecasts from Mizuho, Scotiabank and ANZ.
• On the back of a weaker USD, USDCNH declined for a sixth straight session, by 0.2% to 6.8721 earlier today.

USDJPY:

• Spot 112.42
• USDJPY sank 1.1% to 112.37 after the US dollar extended losses earlier today amid political turmoil surround US President Trump, and as investors sought safe haven assets such as the yen.

GBPUSD:

• Spot 1.2935
• GBPUSD gained 0.3% to 1.2935 following USD weakness as well as better-than-expected inflation data in the UK yesterday.
• Following its bullish break above the 200 day moving average last month, the pair looks likely to extend gains higher should it manage to trade above the 1.3000 resistance. Over the longer-term, the key level to watch is 1.3500.