Spot values at a glance:
Asian stocks started the week mixed, despite the biggest advance in US shares in almost 4 weeks Friday as the country’s jobless rate hit an 18-year low. Gains in Shanghai and Sydney were overshadowed by losses in Singapore and Tokyo. The dollar drifted lower, the benchmark 10yr Treasury yield edged higher while crude oil futures broke above $70/bbl.
US Payrolls Climb, Jobless Rate Drops to 3.9%:
US hiring rebounded in April and the unemployment rate dropped below 4% for the first time since 2000, while wage gains cooled by more than forecast in a sign that the labor market still isn’t tight enough to spur inflation. Payrolls rose 164,000 after an upwardly revised 135,000 advance, Labor Department figures showed Friday. Average hourly earnings increased 0.1% from the prior month and 2.6% from a year earlier, both less than projected. The jobless rate fell to 3.9%, the lowest since December 2000, after six months at 4.1%.
Treasury yields dipped and the dollar fluctuated following the report. Despite the softer-than-expected wage reading, an unemployment rate drifting further below Federal Reserve officials’ estimates of levels sustainable in the long run may in their view add to upward pressure on wages and inflation. That would keep the central bank on track to raise interest rates in June for the second time this year and once or twice more after that in 2018.
North Korea Denies US Pressure:
North Korea said US sanctions aren’t the reason behind its willingness to remove nuclear weapons from the Korean Peninsula, accusing its adversary of trying to ramp up tensions ahead of a summit between the 2 countries. The US is misleading the public by saying its sanctions are working, North Korea’s state-run news agency said on Sunday. The warnings are a reminder that it will seek to project an image of strength for domestic and overseas audiences when North Korean leader Kim Jong Un meets US President Donald Trump. Trump said Friday that a date and place have been set for the summit. The US president is set to meet South Korean President Moon Jae-in in Washington on May 22, in advance of the historic meeting
Iran Opposes Higher Oil Prices:
Iran, faced with a possible restoration of US sanctions, came out against higher oil prices, signalling a split with fellow OPEC member Saudi Arabia, which is showing a willingness to keep tightening crude markets. A “suitable price” for crude is $60 to $65 a barrel, Amir Hossein Zamaninia, deputy oil minister for international and commercial affairs, said in an interview Sunday in Tehran. Oil Minister Bijan Namdar Zanganeh said earlier in the day that Iran supports “reasonable” oil prices and is not an advocate of costlier crude. OPEC will meet next month in Vienna. Meanwhile, Iran’s President Hassan Rouhani has warned the US of “historic regret’’ if it pulls out of the nuclear agreement.
Crude oil prices rose above $70/bbl on Monday for the first time since November 2014, as a deepening economic crisis in Venezuela threatened the country’s already tumbling oil supplies.
Weekly Thematic News:
Companies are buying renewable power at a record pace. AT&T Inc. and Walmart Inc. are among 36 businesses, government agencies and universities that have agreed to buy 3.3 gigawatts of wind and solar power so far this year. That’s on track to shatter the previous high of 4.8 gigawatts of disclosed deals last year, according to a report last week by Bloomberg New Energy Finance.
One of the key reasons is that smaller companies are more comfortable doing these deals now. “There’s a blueprint now,” said Kyle Harrison, a New York-based analyst at Bloomberg New Energy Finance. “So it’s a lot easier for other companies to do it.” In addition to the 4.8 gigawatts in announced deals last year, BNEF also estimates 600 megawatts of undisclosed contracts were signed in Asia. The gains are also due to local renewables program and growing demand in international markets like Mexico and Australia. There are several reasons clean power is attractive. Renewable energy is often the cheapest source of electricity. Long-term contracts to buy clean power from wind and solar farms can also act as hedges against uncertain wholesale prices.
Google and other big technology companies have driven the trend, but the pool of clean-power buyers is deepening. Smaller companies have benefited from growing standardization in the ways companies agree to buy clean energy. Sometimes these companies are recruited to buy wind and solar power from the same power plant as larger buyers that function “like anchor tenants,” Harrison said.
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USDSGD continues to maintain its upside bias, with the pair fluctuating just below its 200-day moving average of 1.3385 for most of last week, largely due to strength in the greenback.
With the recent break out above its downward channel since Dec 2016 confirmed, a move above 1.3385 is likely to push the currency pair higher to its next resistance of 1.3714.
AUDUSD continues to hover just above its 0.7500 handle, seemingly taking a breather following its sharp decline from 0.7800 in April. The momentum remains to the downside, after its more-than-2-year uptrend was breached 2 weeks ago. A convincing close below 0.7500 is likely to lure more Australian dollar bears to push the pair closer to 0.7400.
USDCAD failed to hold above 1.2900 for the second time in a week, signalling that a drop back below 1.2800 is likely over the near-to-medium term. A failure to hold above 1.2800 is likely to lead to a further decline back to the pair’s 200-day moving average of 1.2636.
USDCNH tested its 3-month high of 6.3800 last week. A break out above could signal a reversal of the currency pair’s downtrend which has lasted for about a year. The yuan was under pressure during the latter part of last week after US-China trade talks ended without resolving key differences.
USDJPY tested the key 110 resistance last week and has since pared gains, declining back below 109 as the dollar slipped during Asian trade today. Market participants will continue to watch movement in the 10yr US Treasury yield since it has been supporting the rise in USDJPY during the month of April. A move above 3% is likely to lead to a break above 110 for the currency pair.
The pound continues to remain the weakest currency across the board in recent times, falling against the greenback to 1.3487 last Friday, its lowest level since Jan 12. The main driver of the weaker pound has been decreasing hopes of a BOE rate-hike this month, following poor UK data and increasing divergences about Brexit’s strategy.
The BOE is scheduled to conclude its monetary policy meeting this Thursday; a hike this time would be a positive surprise for market players, but a “dovish hike,” with Governor Carney delaying any possible future move, could keep the pound under pressure.