The prospect of a higher-interest rate environment in the US continues to play out in markets, sending the greenback toward its steepest 3-week climb against the yen since 1995. Government bonds and gold extended declines, while most Asian equities tracked US index futures higher.
- US Treasuries and equities markets were shut in the US last night for Thanksgiving holiday.
- The US dollar continued to push higher, with both the Dollar Index and the Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, rose by as much as 0.2%.
- The S&P 500 Index futures traded overnight, and gained as much as 0.3%, inching higher to record levels.
- A surge in inflation expectations triggered by Donald Trump’s election rewarded investors who bet earlier this year on TIPS – bonds that protect against rising consumer prices; Pimco predicts further gains ahead but Morgan Stanley Investment Management is concerned that the advance is near its peak.
- BOC Governor Poloz is set to give a speech next Monday which could give hints about whether an interest rate cut is coming on 7th Dec, when the central bank next meets.
- Bond yields have spiked in the past month, adding another complicating factor for Poloz. According to a note to clients from Citibank, the BOC may cut rates to counteract some of the increase in Canadian bond yields and to buy ‘insurance’ just in case fiscal stimulus promises at home and abroad fall short.
- The ECB is next due to meet on 8th Dec but according to euro-area officials familiar with the matter, may have room to put off some decision on the future of its bond-buying program until early next year.
- While the ECB continues to pledge monetary support, rising bond yields have eased scarcity concerns and there is no longer a sense of urgency to adjust the parameters of quantitative easing.
- The Turkish central bank unexpectedly raised 1-week repo and overnight lending rates by 0.5% and 0.25% to 8% and 8.5% respectively, surprising economists who had predicted no change.
- President Park Guen-hye’s influence –peddling scandal has seen her approval ratings drop to a lowly 4%, as reported by Gallup Korea, which previously stood at 5% for 3 straight weeks.
- With populist movements gaining traction globally, Lee Jae-myung, a mayor of a city near Seoul, is rising in opinion polls with about a year to go until South Korea’s presidential election. According to a report from Bloomberg, he has pledged to break up the country’s biggest companies, meet unconditionally with North Korean leader Kim Jong Un, and throw incumbent President Park in jail.
- Spot gold extended declines, falling 1.4% to $1,171.18/Oz, a 9 month low, as a surging US dollar continues to weigh on the precious metal.
- With the $1,200/Oz support broken, the next key region lies around $1,170/Oz, followed by the $1,145/Oz support.
- Assets in bullion-backed ETFs have contracted 85.5 metric tons in November to retreat to their lowest levels since June, according to data compiled by Bloomberg. After shrinking for the past 10 sessions, the holdings are on course for the biggest monthly drop in tonnage terms since June 2013.
- After entering a bear market yesterday and registering more than a 20% decline from its highs in August, silver declined 1.1% further earlier today to $16.1745/Oz. The psychological $16/Oz level remains the next support level to be tested.
- For the second day running, crude oil for January delivery was relatively unchanged, as it continued to fluctuate around the $48/bbl handle.
- Oil is currently headed for a second week of gains as OPEC’s focus shifted to negotiations with Iran and non-member Russia for production curbs after Iraq’s prime minister recently signalled that it will agree to trim output.
- Several obstacles remain with Iran, who are insisting it should be allowed to keep increasing output to pre-sanction levels of about 4 million barrels/day. In addition, Russia’s offer to freeze production at record levels, if OPEC does a deal, is frustrating other members who are asking for a cut.
- Spot 1.4312
- USDSGD was largely unchanged as the currency pair continues to be supported above the 1.4300 handle.
- The next level of resistance comes in at 1.4444, the currency pair’s 2016 high.
- Spot 0.7373
- AUDUSD gained 0.5% to 0.7435, as the currency pair continues to be supported above the 0.7400 handle.
- The resilience could be due to the recent jump in iron ore prices, which is the country’s largest export product.
- Support levels further below come in at 0.7259 and 0.7145.
- Spot 1.3488
- USDACD slipped back below the 1.3500 level earlier, falling slightly by 0.1% to 1.3477.
- Support levels below come in at 1.3265 and 1.3000, while the currency pair’s recent upward momentum could mean the resistance of 1.3588 may be tested again soon.
- Spot 6.9194
- The PBOC set its daily fixing 0.12% lower at 6.9158 per US dollar; the fixing rate is down 1% this week – the most in almost 5 months.
- USDCNH declined 0.1% to 6.9352, and looks likely to snap a 5-day positive streak.
- Spot 113.64
- USDJPY advanced 0.8% to 113.90, an 8-month high, and is set to cap its biggest 3-week gain since 1995 as traders view a US interest rate hike increase next month as a near certainty.
- With the 111.45 resistance breached, the next key level lies at 114.50.
- Spot 1.2451
- GBPUSD is currently undergoing some form of consolidation between the 1.2300 and 1.2500 handles over the past week. The currency pair was 0.3% lower at 1.2430 earlier.
- On a longer-term basis, the 1.2100 handle remains a key support level, while 1.2800 acts as an important resistance handle.