October 19, 2016

Daily Observations:

Asian stocks held onto gains after China economic data indicated the world’s second-largest economy is stabilizing. The dollar weakened against most peers while oil and gold maintained near one-week highs.

US:

  • Headline CPI rose 0.3% from a month earlier and 1.5% from a year earlier, both as expected, although prior month’s figures were revised lower. Core CPI, which strips out the volatile nature of food and oil prices, rose 0.1% month-on-month  and 2.2% year-on-year, both missing estimates slightly by 0.1%.
  • Fed funds futures pricing indicated odds for a Fed hike this year fell to 63% from 66%, as speculation continues to mount that the Fed will boost rates come year-end albeit taking a slow path.
  • The S&P 500 Index climbed 0.6%, rising from a one-month low as Goldman Sachs and Netflix both reported better-than-expected earnings. With only 57 S&P companies having reported earnings so far, 84% thus far have posted earnings that exceeded analysts’ estimates.
  • The US dollar weakened, as the Bloomberg Dollar Spot Index extended declines further by 0.2% earlier today, following yesterday’s 0.2% loss.
  • Treasuries gained after the weaker-than-expected core inflation reading. The benchmark 10yr yield declined 2bps to 1.74%
  • More regional Fed banks sought an increase in the discount rate last month, to 1.25% from 1.00%, according to minutes released by the Fed. The Atlanta Fed joined the calls for an increase in the discount rate, pushing the number of regional banks asking for a hike to its highest since December 2015, the last time the Fed raised the federal funds rate.

Canada:

  • Manufacturing sales in August rose 0.9% month-on-month, beating the consensus estimate of a 0.3% gain.
  • The Bank of Canada is expected to kept rates on hold at a record low of 0.50% at its policy meeting later tonight.

UK:

  • Inflation data in the UK was stronger-than-expected as the weaker effects of GBP appears to be manifesting. Headline inflation rose 0.2% month-on-month and 1.0% year-on-year, more than the 0.1% and 0.9% expected respectively. Core CPI exceeded projections as well, by 0.1% to 1.5% year-on-year.

China:

  • China’s economy remained stable in the third quarter, as GDP grew 6.7% year-on-year and 1.8% quarter-on-quarter, matching estimates and prior figures.
  • Industrial production in September however rose 6.1% from a year earlier, less than the 6.4% projected and slowing from August’s gain of 6.3%.
  • Retail sales and fixed assets investment both equalled analysts’ expectations; the former rose 10.7% from a year earlier and the latter grew 8.2% in the first 9 months this year.

Australia:

  • According to minutes of its Oct 4th policy meeting, the RBA said Australia’s prospects for maintaining economic growth that will stimulate job creation and eventually higher wages and inflation are “reasonable”. The central bank expects economic expansion to continue at a moderate pace as headwinds from the drop in mining investment appear to be waning.

Precious Metals:

  • Spot gold built upon its advance yesterday, gaining a further 0.2% to $1,264.87/Oz earlier. Momentum is still in favour of the bears though, as the precious metal continues to maintain below its 200-day moving average of $1,267/Oz.
  • Gold ETF holdings rose 0.1% to 2,053 metric tons as investors poured $605 million over the past week into funds, keeping holdings in gold ETFs highest since 2013.
  • Silver for immediate delivery was little changed, after rising 1.4% to $17.6437/Oz the previous day.

Oil:

  • Crude oil for November delivery jumped 1.3% to $50.95/bbl this morning after it was reported US oil stockpiles dropped by 3.8 million barrels last week.
  • OPEC reiterated its confidence in Russia will cooperate with an agreement to trim supply.

 

USDSGD:

  • Spot 1.3865
  • Following its run up to a 7-month high of 1.3930 on Monday, USDSGD looks to resume its advance after two days of declines, rising 0.1% to 1.3875 earlier today.

 

AUDUSD:

  • Spot 0.7669
  • AUDUSD pared previous day’s gains, falling 0.3% to a low of 0.7659 earlier, following lower-than-expected Chinese industrial production data; China is Australia’s biggest trading partner.

 

USDCAD:

  • Spot 1.3106
  • USDCAD pared prior day’s declines to gain as much as 0.6% to 1.3140 ahead of the Bank of Canada’s policy decision tonight.
  • Analysts are expecting the BOC to adopt a dovish tone in its statement by paring back its economic outlook and signalling the recent oil slump is weighing on exports. Should the statement be less-dovish than expected, USDCAD could decline below the 1.3000 handle.

 

USDCNH:

  • Spot 6.7447
  • USDCNH reversed earlier losses following economic data release that indicated stabilization in the world’s second-largest economy.
  • USDCNH rose 0.1% to 6.7479, as the currency pair threatens to test the 6.7500 handle for the third time in as many days.

 

USDJPY:

  • Spot 103.78
  • USDJPY fell 0.2% to 103.65 following core inflation data in the US that disappointed. The currency pair continues to struggle to breach the 104.

 

GBPUSD:

  • Spot 1.2289
  • GBPUSD was relatively little changed, following the currency pair’s 1.0% rebound yesterday, as stronger-than-expected UK inflation data has given rise to some debate on whether the BOE will continue to ease and risk overshooting inflation targets.

 

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