Spot values at a glance:
Asian shares were slightly weaker on Friday amid fragile market sentiment after US President Donald Trump called off a key summit with North Korea, though investor concerns were softened by expectations the two countries may still continue dialogue. The benchmark US 10yr Treasury yield lingered below the 3% mark while the Dollar Index erased its overnight decline. Gold held above $1,300/Oz while crude oil futures declined as OPEC and its allies are reported to be considering supply cuts.
Trump-Kim Summit Cancelled:
US President Donald Trump called off his planned June 12 summit with North Korean leader Kim Jong Un, citing “tremendous anger and open hostility” in recent statements from Pyongyang. Trump called the collapse a setback for both North Korea and the world and said the US military is ready if necessary in the event of a conflict on the Korean peninsula. “While many things can happen and a great opportunity lies ahead, potentially, I believe this is a tremendous setback for North Korea and indeed a setback for the world,” Trump said at the White House hours after releasing a letter to Kim cancelling the meeting. Trump said he had spoken with the leaders of South Korea and Japan, and the two nations “are not only ready should foolish or reckless acts be taken by North Korea, but they are willing to shoulder much of the financial cost or burden” of a conflict.
North Korea said it was surprised by Trump’s decision and that the country remains willing to meet with the US at any time. In a statement Friday by state-run KCNA that cited vice Foreign Minister Kim Kye Gwan, North Korea vowed to continue to pursue peace and signalled it would give Washington more time to reconsider talks.
Markets in Cautious Mode:
Most Asian indices opened lower after the cancellation of the summit, which sparked a move to safe-haven assets. US stocks partially rebounded from early declines, as investors assessed the broader impact on trade relations and economic growth. Gold posted its biggest gain in a month and Treasuries rose with the yen amid a move to safe-haven assets. Trump’s decision heightened concerns that geopolitical turmoil may upend hopes for a global expansion, particularly as a China trade deal looks less likely. On Wednesday, the administration threatened to impose tariffs on imported cars and trucks for “national security” purposes. Energy stocks paced the losses as crude plunged after Russia’s energy minister reiterated that OPEC and its partners will discuss phasing out supply curbs when they meet next month.
Turkish Lira Weakness Resumes:
The relief brought by Turkey’s decision to boost interest rates at Wednesday’s emergency meeting didn’t last long, as the lira resumed its nosedive against the dollar. President Recep Tayyip Erdogan appears to be offering little respite. Erdogan, who’s seeking re-election in a June 24 vote, didn’t mention the lira or the rate increase in an opening campaign speech in Ankara Thursday. While he kept his remarks on economics brief, he reiterated his commitment to an open economy. Market analysts in the country, meanwhile, are censoring their reports for fear of losing their jobs after one research chief was fired for publishing speculation Erdogan might have staged a failed 2016 coup.
US Launches Bitcoin Probe:
The Justice Department has opened a criminal probe into whether traders are manipulating the price of Bitcoin and other digital currencies, dramatically ratcheting up US scrutiny of red-hot markets that critics say are rife with misconduct, according to 4 people familiar with the matter, Bloomberg news reported. The investigation is focused on illegal practices that can influence prices — such as spoofing, or flooding the market with fake orders to trick other traders into buying or selling. Authorities worry that virtual currencies are susceptible to fraud for multiple reasons – scepticism that all exchanges are actively pursuing cheaters, wild price swings that could make it easy to push valuations around and a lack of regulations like the ones that govern stocks and other assets.
Merkel Urges China to Open Home Market:
German Chancellor Angela Merkel said China risks facing investment “constraints” in Europe unless it further opens its home market, even as both sides pledged to defend global institutions against US attacks. Standing alongside Chinese Premier Li Keqiang in Beijing, Merkel told reporters Thursday that both are “committed to free and fair trade.” For his part, Li signalled backing for European efforts to uphold a nuclear accord with Iran that Trump is abandoning. “We understand that China is still developing, but we also see that in some areas China is the absolute technology leader,” Merkel said at a Germany-China business forum she attended with Li. “So in these areas we naturally want reciprocal access. Otherwise, this will gradually lead to us putting in place constraints, perhaps too many constraints, and that wouldn’t be good.”
USDSGD regained back to its 1.3400 handle, following a recovery in the USD after geopolitical fears cooled earlier today. The currency pair remains poised to log its first weekly decline in more than a month though, after economic data showed Singapore’s industrial production accelerated in April, boosting the Singapore dollar. From a longer-term perspective, the momentum continues to remain to the upside, with the pair’s 200-day moving average at 1.3371 now serving as a line of support. The next resistance of 1.3540 may be tested soon.
AUDUSD edged maintained some of its overnight gains earlier today, after a boost in metal prices buoyed the Australian dollar. The year-to-date downtrend remains intact although a recovery back above 0.7700 may signal a break in trend.
USDCAD gained to 1.2900, with the Canadian dollar getting weighed down by crude oil prices, after OPEC signalled it might dial back on the current output cuts in order to compensate for Venezuela and Iran potential production drop. The decision will be made in June at the next OPEC meeting in Vienna.
USDCAD remains in a sideway range, having traded largely between 1.3000 and 1.2750 for the month of May.
USDCNH has been capped below its key 6.3800 resistance in recent weeks, despite continued broad USD strength. A break out above could signal a reversal of the currency pair’s downtrend which has lasted for about a year.
According to analysts interviewed by Bloomberg, volatility and risk reversals for offshore yuan are expected to stay range-bound with the US-China trade tensions continuing to persist.
USDJPY briefly fell below 109 last night after increased safe haven demand on geopolitical fears. The pair has since recovered back to 109.54 although further risk-off sentiment could spark more declines. Its key support resides around 107.80.
GBPUSD pared most of its gains from last night earlier today following the USD’s recovery. Sterling gained on Thursday following after UK retail sales in April beat market expectations.
Over the longer-term, the bias remains to the downside with the pair’s 200-day moving average and previous key support of 1.3450 broken. The next support below comes in around 1.3310.