May 19, 2017

Daily Observations:

Asian equities looks set to stabilize at the end of a turbulent week in which investors confronted political crises in the US and Brazil. Crude oil is headed for a second weekly gain following support from OPEC members regarding a joint pledge from Saudi Arabia and Russia to curb output. The US dollar pared gains from its recovery overnight.

US:

• US President Donald Trump denied trying to quash an FBI investigation of his former national security adviser and said there was no collusion by his campaign with the Russians who use hacking and disinformation to interfere with the 2016 presidential election.
• Trump called the multiple inquiries into Russian meddling in the US election a “witch hunt” that’s unnecessarily diving the country. But said he respects the decision Wednesday by the Justice Department to appoint former FBI Director Robert Mueller as a special counsel for a probe that has enveloped the White House in a political storm.
• Initial jobless claims for the week ended 13 May unexpectedly declined to 232,000, from 236,000 in the week prior; analysts were expecting a rise to 240,000.
• The Philadelphia Fed Business Outlook index gained to 38.8 in May, from 22.0 in April, better than the expected 18.5 reading predicted.
• Risk sentiment returned overnight, as US markets rebounded with the Nasdaq Composite adding 0.7%, and the benchmark S&P 500 Index climbing 0.4%. Telecommunication shares led the charge.
• The US dollar rallied overnight, closing 0.3% higher in New York before paring back some of its gains earlier today.
• The benchmark 10yr Treasury yield pared earlier session declines of as much as 4bps, to end 1bp higher 2.23% on the back of solid labor and manufacturing data.

Canada:

• US President Trump’s top trade negotiator, Robert Lighthizer, struck a more dovish tone last night in serving notice to Congress of the administration’s intention to renegotiate NAFTA. Lighthizer noted the deal has been a success for some industries such as agriculture, investment services and energy, and added the US would prefer to keep the three-way structure, a notable comment from an administration that has denounced multilateral deals as unwieldy.

Brazil:

• The crisis in Brazil added another layer of worries for investors. President Michel Temer has defied calls for him to step down, saying a Supreme Court probe will debunk allegations he participated in a cover-up.

UK:

• Retail sales in April accelerated, rising 2.3% month-on-month and 4.0% year-on-year, exceeding analysts’ median estimates of 1.1% and 2.1% respectively. Excluding auto fuel, retail sales rose 2.0% from a month earlier and 4.5% from a year ago, surpassing expectations of 1.0% and 2.6% respectively.

China:

• With stocks and bonds in retreat amid anxiety over China’s deleveraging campaign, officials have been guiding the yuan higher against the dollar in a move that’s caught market watchers by surprise. After meeting expectations earlier in the year, the reference rate used by the PBOC to manage the yuan has come in stronger than expected according to 4 banks who regularly track the measure on 25 out of the past 32 trading days.
• Policy makers are railing against speculation and stepping up controls on the banking industry, but also boosting injections of cheap cash amid concern over tight liquidity. The yuan is playing a steadying role as well, with foreign investors citing its stability in the face of spiking bond yields and equity-market whiplash as one of the reasons they’re remaining calm about the clampdown.

Precious Metals:

• Spot gold retreated from a 2-week high, falling 1.4% to $1,246.09/Oz early this morning, before recovering back above the $1,250/Oz handle. Gold has recently benefitted from the disarray engulfing Trump’s administration which boosted safe haven-buying and as investors scaled back the odds of a Fed hike next month.
• The precious metal has climbed back above its 200-day and 200-week moving averages, but still remains capped by the multi-year downtrend line – a convincing rally above it could lead to a significant move back up to 2016-highs.
• Silver for immediate delivery slumped by as much as 2.1% to $16.4473/Oz last night, before paring back most of its decline earlier.

Oil

• Crude oil futures expiring in June climbed 1.1% to $49.88/bbl, and is poised for its second weekly gain on optimism OEPC will reaffirm efforts to drain a global glut.
• Algerian Energy Minister Houreddine Boutarfa said most OPEC back the plan to prolong output curbs by 9 months. A Bloomberg survey of analysts this week showed the supplier group and its allied producers will extend the cuts for at least 6 months, even as surging US output threatens the OPEC’s goal of draining excess supply.

USDSGD:

• Spot 1.3918
• USDSGD remains little changed, just above the 1.3900 handle, with USD weakness creeping in today following an overnight rally.
• Currently at a key support level, a strong close below 1.3900 for the pair and we may witness a move down to the next support region of 1.3725.

AUDUSD:

• Spot 0.7435
• AUDUSD was 0.3% higher at 0.7444 amid USD weakness today, gaining steadily throughout the day.

USDCAD:

• Spot 1.3586
• USDCAD fell 0.5% to 1.3583, breaching below the 1.3600 mark for the third consecutive day, following USD weakness as well as more-dovish-than-expected comments from a US trade representative regarding NAFTA’s negotiation.
• The pair continues to remain supported at the key 1.3575 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 6.8867
• The PBOC earlier weakened its daily reference rate, for the first time in 7 sessions, by 0.25% to 6.8786 per US dollar.
• USDCNH edged 0.1% higher to an intraday high of 6.8900.

USDJPY:

• Spot 111.44
• USDJPY rebounded overnight, gaining 1.3% to 111.74, as risk sentiment returned to dampen demand on safe haven assets such as the yen.
• The 200-day moving average of 109.77 is likely to provide some support against further downside.

GBPUSD:

• Spot 1.3003
• GBPUSD sharply rebounded off the 1.2900 handle earlier this morning, despite yesterday’s better-than-expected retail sales numbers, and is currently testing the 1.3000 resistance again.
• 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.