Spot values at a glance:
Asian stocks were mixed, while the euro slipped against most currencies after Mario Draghi’s dovish message yesterday and as investors assessed the path for higher US borrowing costs when the Fed meets next month.
- Federal Reserve Bank of San Francisco President John Williams sees “a much smaller” Fed balance sheet in about 5 years, at the end of an unwinding process that could start with a “baby step” later this year, in an interview with Bloomberg TV. Williams, who does not vote on monetary policy this year, said the downsizing will be “boring” and take place “in the background”. It will leave the Fed with assets that will still be significantly larger than they were before the crisis.
- Williams’ views echoed those of Cleveland Fed’s Loretta Mester, also a non-voter this year. In an interview with Germany’s Handelsblatt, she called for balance-sheet unwinding to start this year and to be communicated “at the right time”.
- Louis Fed President James Bullard said they jury is still out on whether government policies will meet expectations that have been priced into equity markets. He added that he thinks recent gains in markets are in anticipation of corporate tax changes and possibly personal tax changes that are afoot in the US, and that Washington “does have to deliver at some point”.
- Markets in the US remained closed overnight for Memorial Day. The US dollar gained earlier this morning, with the Bloomberg Dollar Spot Index rising 0.2% as weaker euro and sterling currencies provided tailwinds for the dollar gauge, which tracks the greenback against 10 major peers.
- The benchmark 10yr Treasury yield slipped 2bps to 2.23%.
- ECB President Mario Draghi, speaking after a day German Chancellor Angela Merkel signalled a potential drift in ties between a Trump-led US and its trading partners, echoed her views by commenting that “the neo-protectionist stances that have been stated in the US are certainly of concern”.
- Draghi contrasted caution about the global environment with the brightening outlook for the euro area, describing the currency bloc’s economic upswing as “increasingly solid” and broadening.
- The situation appears to have worsened further for UK Prime Minister Theresa May’s Conservatives party. The various polls published over the weekend showed May’s Conservatives party lead is narrower than previously thought. According to a weekend poll by ORB, the Conservatives led the Labour party by 6 points, much narrower than a 12 point lead in the week before.
- According to a Bloomberg report, the first hints of China’s economic performance this month suggest that a slowdown in growth is taking hold, as policy makers beef up efforts to clamp down on financial risks.
- The international-investor optimism that dominated in the earlier part of the year is now souring, as curbs on leverage push up the cost of domestic borrowing. Small and medium-sized companies are also reporting dented confidence, and sentiment among sales managers and in the steel market worsened.
- The jobless rate in April remained at 2.8%, the lowest in more than 2 decades, and matching expectations.
- Retail sales gained 1.4% from a month earlier and 3.2% from a year ago, accelerating from March and beating their respective consensus estimates of -0.2% and 2.3%.
- Australia’s dollar is the worst-performing major developed currency in the past 3 months and the country’s equity market is among the world’s weakest this year. As key export iron ore tumbles at the fastest pace since 2008, swap traders have switched from betting the RBA will raise rates by year’s end to pricing in about a one in five chance for a rat cut instead.
- Spot gold added 0.2% to $1,270.44/Oz, reaching its highest level in almost a month, as ECB President Mario Draghi continues to be dovish on the euro economy, reaffirming the euro area still needs exceptional support from monetary policy.
- After consolidating between the $1,250/Oz and $1,260/Oz handles, last Friday’s break above $1,260/Oz may signal further upside for the yellow metal.
- 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.
- Silver for immediate delivery reached a 1-month high as well, advancing 0.5% to $17.4530/Oz earlier today.
- Crude oil futures expiring in July maintained previous session gains, holding just below the $50/bbl handle. There was no settlement yesterday due to the US Memorial Day holiday.
- US inventories have fallen for 7 straight weeks in a sign the production limits may be working, though stockpiles are still above the 5-year average. Saudi Arabia plans to reduce exports to the world’s biggest consumer to speed up that decline.
- Spot 1.3872
- USDSGD extended yesterday’s rebound, gaining 0.3% to 1.3878 earlier today. The resistance at 1.3918 remains.
- To the downside, a break below 1.3800 and the next level of 1.3725 may be tested soon.
- Spot 0.7429
- AUDUSD slipped 0.3% to 0.7416, and looks poised to retest the 0.7400 handle again soon as persisting risk-off trades on the back of the re-emergence of the Greek default drama and UK election jitters continue to weigh on the higher-yielding AUD.
- Spot 1.3475
- USDCAD continues to consolidate on a low volume session due to a US holiday. The pair has been moving in a tight trading range ahead of the next 4 days where a deluge of US and Canadian data is expected.
- The pair was 0.2% higher at 1.3477 earlier. To the upside, the pair should find some resistance around 1.3540.
- Spot 6.8282
- USDCNH rebounded 0.2% to 6.8323, following 3 straight sessions of declines which saw the currency pair fall below its 200-day moving average for the first time since Oct 2014.
- The momentum remains firmly to the downside, with a retest of the 6.8000 psychological level likely.
- Spot 110.90
- USDJPY fell 0.5% to 110.78, a one-week low, as the yen gained against most major peers as concerns about political risks in the US and Europe increased demand in the yen today.
- The 115 handle is expected to be a region of resistance, while the 200-day moving average of 110 is likely to provide support.
- Spot 1.2831
- GBPUSD fell by as much as 0.4% to 1.2795, before paring back some of its declines. The pound came under renewed selling pressure after a latest poll Labour continuing to narrow the gap against the Conservatives in the run up the June 8 elections.
- With a decline back below the key 1.3000 level, an 11-week rally in GBPUSD looks poised to come to an end should the pair breach back below 1.2800.