Spot values at a glance:
China stocks declined together with the Australian dollar after Moody’s cut its rating on the country’s debt. Stock indices elsewhere followed the US markets into positive territory. Gold declined as investors await the Fed’s minutes from its last meeting due later today, and weigh the prospects of a rate-hike next month.
- In his fiscal 2018 budget proposal, Trump asked Congress for $3.6 trillion in spending cuts that would mean steep reductions in food stamps, Medicaid health insurance payments, disability benefits, low-income housing assistance and block grants that fund meals-on-wheels for the elderly. The plan found little favour in Congress, even amongst Republicans. Budget Director Mick Mulvaney had called the proposal a rethinking of government to place greater weight on the interests of people who pay taxes rather than those who turn to it for help.
- The Markit Manufacturing PMI in May slipped to 52.5, from 52.8 in April, missing the consensus estimate of 53.0. Services PMI rose to 54.0 from 53.1 over the same period, surpassing economists’ median forecast of 53.3.
- New home sales in April slipped 11.4% from a month earlier, slowing from a 5.8% gain in March and falling more than the expected drop of 1.8%.
- The Fed’s Bank of Philadelphia President Patrick Harker said June is a “distinct possibility” for the US central bank’s second interest-rate increase of 2017. He added that he continue to see 3 rate hikes for 2017 as appropriate, and reiterated that Fed balance-sheet unwinding will probably start this year, while emphasizing that the process will be gradual and predictable.
- The US dollar gained, with the Bloomberg Dollar Spot Index rising 0.3% overnight, ahead of the release of the FOMC minutes tonight.
- Treasury yields advanced; the benchmark 10yr Treasury yield rose 3bps to 2.28% in New York, the highest close in a week.
- US stocks pushed toward all-time highs, as the S&P 500 Index’s fourth straight gain took it back just shy of 2,400. Financial stocks led gainers, with banks boosted by the prospect of a June rate-hike.
- UK Prime Minister Theresa May has raised the nation’s threat level to “critical” from “severe”, indicating another attack may be imminent as troops were dispatched to various sporting and musical events in a bid to beef up security. She said native-born suicide bomber Salman Abedi, who yesterday killed 22 people at a Manchester concert, could have been part of a wider network. ISIS has claimed responsibility.
- Moody’s Investors Service cut its rating on China’s debt for the first time since 1989, lowering the rating to A1 from Aa3 earlier today and challenging the view that the nation’s leadership will be able to rein in leverage while maintaining pace of economic growth.
- Moody’s cited the likelihood of a “material rise” in economy-wide debt and the burden that will place on the state’s finances, while also changing the outlook to stable from negative.
- According to a Bloomberg report, the downgrade comes at a bad time as China is moving aggressively to open its bond market with the aim of increasing efficiency of credit allocation and balance an exodus of domestic funds. A lower rating will make it more expensive for authorities to do so.
- CPI for April rose 0.4% year-on-year, slowing from the 0.7% rise in the month prior and less than the expected 0.5%.
- Core CPI, which excludes the effects of accommodation and private road transport, rose 1.7%, faster than March’s 1.2% gain and surpassing the consensus estimate of a 1.5% increase. Last month’s increase was the most since October 2015, and was driven mainly due to higher electricity tariffs, which boosted the fuel and utilities component of the index by 12.9%.
- Spot gold retreated 0.8% to a session low of $1,250.34/Oz earlier this morning, as investors await more clues on pace of interest rate increases, with the Fed due to release minutes later today from its last minutes and most traders expecting a hike last month.
- From a technical analysis point-of-view, a golden cross has formed and could be a bullish signal. A golden cross is formed when the 50-day moving average crosses above the 200-day moving average, and has only occurred 4 times in the past 5 years for gold and typically marks a multi-week trend.
- The precious metal continues to be supported above its 200-day moving average of $1,245.50/Oz.
- Silver for immediate delivery erased previous day’s gains, falling 1.0% back below the $17/Oz earlier today.
- Crude oil futures expiring in June rose 0.7% in New York to register its fifth consecutive session of gains, and added a further 0.4% to $51.67/bbl earlier today.
- US inventories fell by 1.5 million barrels last week, the American Petroleum Institute was said to report. While OPEC and its allies are close to an agreement to extend output cuts into 2018, there could still be additional propositions, Algeria’s Energy Minister Noureddine Boutarfa said in Vienna, where the producer group will meet on Thursday.
- Spot 1.3903
- USDSGD gained 0.3% to 1.3918, amid a strengthening US dollar today.
- Having found some support around the 1.3819 level, the currency pair could undergo further consolidation before deciding on its future direction.
- Spot 0.7452
- AUDUSD slid 0.7% to 0.7447, erasing yesterday’s gains, after investors sold the Aussie following China’s debt rating downgrade by Moody’s earlier today.
- Resistance is expected around the 200-day moving average of 0.7536.
- Spot 1.3532
- USDCAD reversed its previous day’s decline, advancing 0.5% to 1.3535 earlier after the USD erased all losses versus the loonie.
- Investors will be awaiting the rate decision by the Bank of Canada later today, where the central bank is heavily expected hold rates unchanged despite growing pressure from rising property prices in major cities.
- Spot 6.8837
- The PBOC earlier weakened its daily reference rate by 0.14% to 6.8758 per US dollar.
- Both onshore and offshore yuan declined after Moody’s cut its rating on China’s debt. USDCNH gained as much as 0.2% to 6.8900.
- Spot 111.86
- USDJPY’s rebound gathered pace as the pair rose 0.7% to 111.99 earlier today.
- The 115 handle is expected to be a region of resistance.
- Spot 1.2973
- GBPUSD erased an overnight gain, falling back beneath the 1.3000 handle, after the terror threat in the UK was raised to its highest level.
- 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.