Spot values at a glance:
Most equities in Asia climbed together with US equity-index futures, while oil advanced to the highest in more than a month ahead of OPEC’s meeting. Gold and Treasuries gained following renewed uncertainties over the future trajectory of interest-rate hikes in the US.
- Most Federal Reserve officials judged “it would soon be appropriate” to tighten monetary policy again and backed a plan that would gradually shrink their $4.5 trillion balance sheet, according to minutes from the FOMC’s meeting earlier this month. The statement pointed toward a hike as soon as the Fed’s meeting next month, though FOMC voters added the caveat that “it would be prudent” to wait for evidence that a recent slowdown in economic activity had been transitory.
- According to FX Strategist John Hardy from Saxo Capital Markets, the minutes mention an unemployment at or below 4.5% is below the Fed’s long run level and suggest that some believe that recent lower inflation is due to transitory factors while others expressed concern on the inflation front, which thus lead to dovish reactions on the currency and interest rates fronts. Financial markets still anticipate a June rate-hike, but the future trajectory of hikes remains uncertain.
- Investors currently still see a solid chance of a rate hike in June, with pricing in federal funds futures on Bloomberg indicating nearly an 80% chance of a hike.
- The benchmark 10yr Treasury yield fell 3bps to 2.25%, paring most of its previous session’s rise.
- The US dollar sold off on a more neutral-than-expected FOMC minutes, as the Bloomberg Dollar Spot Index declined 0.3% in New York, and a further 0.1% in Asia earlier today.
- The S&P 500 Index gained for a fifth consecutive session to close at a record high of 2,404.39, after Fed officials signalled the economy remains on track.
- The Bank of Canada left its benchmark interest rate at 0.5% last night, as expected, and gave a nod to improving economic data in a shift that appears less dovish after almost 2 years of unchanged interest rates.
- Governor Poloz added new language stating “the current degree of monetary stimulus is appropriate at present”, and also said Canada’s adjustment to the oil price decline is “largely complete” while “recent economic data have been encouraging”.
- The language represents a slight change in tone for the central bank that up to now has been downplaying the recent run of strong data, pointing instead to persistent slack in the economy, especially relative to the US, as well as emerging geopolitical risks.
- Most economists now see the central bank leaning more to the side of raising rates, rather than cutting them.
- Hong Kong saw its debt rating cur by Moody’s Investors Service hours after China’s downgrade, highlighting potential risks from a tightening economic integration. Moody’s cut the rating local- and foreign-currency issuances to Aa2 form Aa1, and changed the outlook to stable from negative. This was Hong Kong’s first cut by Moody’s since the Asian financial crisis in 1998.
- GDP in the first quarter of this year rose 2.7% year-on-year, quickening for the prior quarter’s expansion of 2.5% and in line with economists’ forecasts.
- On an annualized basis, GDP declined 1.3% from the previous 3 months, an improvement from the prior contraction of 1.9% but worse than the median estimate of -0.9%.
- The services industry, which accounts for about two-thirds of the economy, contracted an annualized 2.1% in the first quarter from the previous 3 months.
- Manufacturing shrank an annualized 1.5% in the period, compared with a decline of 6.6% projected last month.
- Construction grew 4.3%, while the finance and insurance industry contracted 17.8%.
- Spot gold advanced 0.5% to $1,259.17/Oz, following a fall in Treasury yields and a weaker US dollar overnight. The Fed’s last meeting suggested officials are include to hike in June, but are less clear on the path for rates after that.
- 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/Oz.
- Silver for immediate delivery gained 1.0% to $17.2421/Oz, reversing previous day’s declines.
- Managed-money net positions on gold, silver, platinum and palladium have declined to a mere 88,000, or less than 12,000 contracts above the January low and 110,000 below the mean since the beginning of the cycle. Appearing more organically driven than much of 2016, gold and silver open interest is up only 16% compared with the 19% total return of the Bloomberg Precious Metals Subindex.
- The rapid increase in open interest and managed-money net positions to new records in 2016 drove gold and silver price gains, until long liquidation flushed the market. The lowest amount of precious metals net longs since the first week of 2017 may provide an opportunity for further price appreciation.
- Crude oil futures expiring in July added 1.1% to $51.93/bbl, resuming its gain towards the $52/bbl handle before OPEC ministers meet in Vienna to decide on extending supply cuts.
- In the US, oil inventories fell a seventh week while output gained, government data showed.
- Spot 1.3840
- USDSGD fell 0.4% to 1.3830, its lowest level in 6 months, following USD weakness today.
- The pair currently sits at a key support level; a break below 1.3800 and the next level of 1.3725 may be tested soon.
- Spot 0.7509
- AUDUSD reversed previous day’s declines, rising 0.6% to 0.7515 earlier after the US dollar sold off today.
- With the US dollar remaining on the back foot, the AUDUSD could potentially rise higher to 0.7600.
- Spot 1.3396
- USDCAD declined by as low as 0.9% to 1.3395, following its more hawkish-than-expected statement released last night following is benchmark rate decision.
- With a fresh hawkish stance adopted by the BoC, the loonie could continue to strengthen further, with the next possible resistance residing at the 200-day moving average of 1.3300.
- Spot 6.8837
- The PBOC earlier strengthened its daily reference rate by 0.09% to 6.8695 per US dollar, which was stronger than what economists at Nomura and Scotiabank were expecting.
- USDCNH declined 0.2% to 6.8635, its lowest level in almost 2 months, following its stronger-than-predicted fixing and amid a selloff in USD today.
- Spot 111.61
- USDJPY pared an earlier session decline, which saw the pair fall 0.3% to 111.48, following comments from a BOJ official who said it was vital to persistently continue monetary easing.
- The 115 handle is expected to be a region of resistance.
- Spot 1.2982
- GBPUSD looks set to snap a 3-day losing streak, gaining 0.2% to 1.2986 earlier in its session after the US dollar slumped across the board.
- Focus now shifts towards the second estimate of last quarter’s GDP in the UK, due later today, which could serve as fresh impetus to sterling bulls.
- 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.