November 21, 2016

Daily Observations:

Oil jumped on optimism OPEC will agree to freeze output, buoying Asian energy stocks. The dollar maintained most of its gains from last week’s rally, as most market participants seem convinced the Fed will pull the trigger on a rate hike in December.

US:

  • New York Fed President William Dudley said any spending and tax changes from Trump’s administration should focus on measures that lift the productive capacity of the US economy and that the Fed’s 2% inflation target is not a ceiling. Dudley also warned against dismantling the 2010 Dodd-Frank Act, calling it a “big mistake” to go back to the pre-financial crisis set of regulations that were in place.
  • The US dollar’s appreciation over the past 2 weeks has come as Treasury yields have surged on bets the new administration will boost spending and spark an increase in inflation.
  • The Bloomberg Dollar Spot Index cemented 2-week 4.7% rally last Friday, ending 0.5% higher to close at its highest level since January. The Dollar Index closed above the 101.00 handle – a 13-year high.
  • Treasury 10yr note yields rose 5bps to 2.35%, a year-to-date high.
  • The difference between 10yr yields and similar maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, rose to as much as 1.97% this week, the highest since April 2015.
  • The S&P 500 Index slipped 0.2%, after climbing within 2 points of its Aug 15th record of 2,190.15, capping a weekly gain of 0.8%. Health-care stocks led decliners last Friday.

Canada:

  • October’s headline CPI rose 0.2% month-on-month and 1.5% year-on-year, matching expectations, and accelerating from the prior month. Core CPI however rose less than expected – 0.2% from a month earlier and 1.7% from a year before.

Germany:

  • Angela Merkel has ended months of speculation regarding her position after announcing that she will run for a fourth term as German chancellor. Merkel commented that she had weighed her decision “endlessly” and said she will see re-election as chairwoman of her party and will then contest next year’s federal election.

Japan:

  • Exports in October slumped 10.3% from a year earlier, more than the 8.5% drop projected. Imports fared poorly as well, sliding 16.5% over the same period, more than the 16.1% fall expected.
  • The Abe administration is discussing an outline of its budget for 2017 which is said to include and elevated role for fiscal policy, according to a draft document seen by Bloomberg. The document indicated that areas of focus include childcare, elderly-care and research and development.

Precious Metals:

  • Spot gold pared some of Friday’s 1.8% decline earlier today, rising 0.5% to $1,214.16/Oz. the $1,200/Oz price level is likely to provide some support at least for the time being, while the $1,233.18/Oz high last week will act as a resistance point.
  • Spot silver gained 0.8% today to $16.7026/Oz after rebounding off the $16.50/Oz level on Friday.
  • This month through Thursday, almost $79 million was pulled from iShares Silver Trust, the largest ETF backed by the metal, contributing to the biggest outflow since January. Holdings in all silver-backed ETFs tracked by Bloomberg globally fell by 2.9 million ounces, set for the first monthly decline in 10 months.

Oil:

  • Crude oil for December delivery settled 0.6% higher on Friday, and extended gains earlier today by another 1.3% to $46.29/bbl, after Algerian Energy Minister Boutarfa said he’s more optimistic of clinching an agreement after discussions between OPEC and Russia in Doha, while Russia Energy Minister Novak said a consensus is emerging and that his country is considering an output freeze of 6 months.
  • On Sunday, Putin told reporters that there are no major obstacles left within OPEC in reaching a deal to freeze output.

 

USDSGD:

  • Spot 1.4254
  • USDSGD pared recent gains earlier today, declining 0.1% to 1.4249; the currency pair had just recently concluded its biggest 2-week advance since 2011.
  • The currency pair’s recent surge seems to be overdone, and a retreat back to the 1.4200 handle could be likely.
  • Near-term resistance lies around 1.4350.

 

AUDUSD:

  • Spot 0.7327
  • AUDUSD extended declines, sliding 0.3% to 0.7314 earlier and looks set to fall for a fourth straight day
  • According to a report from Rabobank, although RBA Governor Lowe has taken a more pragmatic approach to low inflation, potential risks stemming from Trump’s presidency combined a drop in the national wage growth to an all-time low suggest the RBA may still ease again.
  • Support levels below come in at 0.7259 and 0.7145.

 

USDCAD:

  • Spot 1.3474
  • USDCAD retreated 0.3% to 1.3466 today on the back of a weaker USD and higher crude oil prices.
  • The 1.3400 support region is likely to hold, stronger crude oil prices will likely provide more headwinds for the currency pair.

 

USDCNH:

  • Spot 6.9102
  • USDCNH advanced 0.2% to 6.9176, an 8-year high after the PBOC weakened its reference for the twelfth straight day.
  • According to a Reuters report, Chinese policymakers are ready to slow the yuan’s depreciation to reduce the risk of capital flight. If the currency falls too quickly though the 7.0000 level, the central bank will control it, one policy adviser said.

 

USDJPY:

  • Spot 111.06
  • USDJPY was steady earlier today, following Friday’s 1.8% rally. The next key resistance lies at 111.45.

 

GBPUSD:

  • Spot 1.2336
  • GBPUSD maintained below the 1.2400 handle, following its 1.0% decline last Friday.
  • The 1.2100 handle remains a key support level, while 1.2800 acts as an important resistance handle.

 

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