October 20, 2016

Daily Observations:

Asian shares rose as a rally in crude oil spurred demand for higher-yielding assets. The Mexican peso strengthened after the third and final American presidential debate earlier today was perceived as a positive for Hillary Clinton’s campaign.

US:

  • Housing starts unexpectedly slumped 9.0% from a month earlier to the lowest since Mar 2015.
  • According to the Fed’s latest Beige Book, an economic survey by reserve banks, the US economy maintained a steady growth pace between late August and early October, as a tight labour market with nascent wage pressures contributed to a “mostly positive” outlook. The report characterized inflation as “mild”, signalling that a tight labour market has yet to lift inflation to the Fed’s 2% target.
  • Hillary Clinton and Donald Trump went head-to-head in the final US presidential debate as traders count down to the election and the next Fed meeting which is about two weeks away. A Bloomberg Politics national poll showed a 9 point lead for Clinton.
  • The S&P 500 Index added 0.2%, after gaining the most in 2 weeks on Tuesday, as stocks extended rallies on better-than-expected earnings from Morgan Stanley and Halliburton Co. Energy shares led gainers as crude oil neared $52/bbl.
  • The US dollar found some footing following recent weakness, as the Bloomberg Dollar Spot Index looks poised to snap a three-day winning streak and was 0.1% higher earlier today. The Mexican peso – which has evolved into a barometer on the fortunes of Trump’s campaign – climbed 0.6% to a six-week high earlier.
  • Treasuries fell as Saudi Arabia’s $17.5 billion bond sale – the largest ever from an emerging- market nation – weighed on US sovereign debt; the benchmark 10yr yield rose 1bp to 1.75%.

Canada:

  • The Bank of Canada left its benchmark policy rate unchanged at 0.5%, as expected, and maintained a dovish stance.
  • Governor Poloz revealed the BOC “actively” discussed the possibility of adding more stimulus into the economy, but chose to hold off given the large number of unknowns including global political uncertainty.

Europe:

  • Traders await the ECB’s policy-setting meeting Thursday for signals about its monetary stimulus efforts. Most economists in a Bloomberg survey anticipate it will prolong its 1.7 trillion euro bond-buying program in December and won’t start to taper its asset purchases before the second half of 2017.

UK:

  • German Chancellor Angela Merkel’s government is battening down the hatches for the coming Brexit talks, instructing officials to avoid any back-door contacts that could hand the UK and advantage. The unbending German line underscores Merkel’s focus on maintaining a united front against the UK, even at the risk of cutting economic ties.

Australia:

  • The unemployment rate in September fell to 5.6% from 5.7% prior. Employment surprisingly fell by 9,800, missing the 15,000 increase expected by analysts and declining for the second consecutive month.
  • The disappointing employment change was led by a decrease of 53,000 full time jobs; part-time employment rose by 43,200.
  • In a note to clients, Morgan Stanley said Australia’s housing boom has peaked, with a looming apartment glut set to lead to a sharp slowdown in future developments.

Precious Metals:

  • Spot gold advanced for a third consecutive day to the $1,270/Oz handle, reaching its highest level in two weeks on the back of recent dollar weakness, amid mounting speculation that future US interest-rate increases will be gradual.
  • 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, continuing to be supported above the $17.50/Oz handle.

Oil:

  • Crude oil for November delivery jumped 2.6% to settle at $51.60/bbl, the highest close since June 2015, after the Energy Information Administration reported that nationwide crude supplies dropped by 5.25 million barrels to the lowest level since January.
  • In addition, Saudi Arabia’s energy minister said many nations are willing to join OPEC production cuts without naming other countries.

 

USDSGD:

  • Spot 1.3884
  • USDSGD gained 0.2% to 1.3895, advancing for a second day on the back of higher Treasury yields.
  • The 1.4000 handle is likely to be reached soon.

 

AUDUSD:

  • Spot 0.7671
  • AUDUSD reversed gains of as much as 0.7% to retreat back below the 0.7700 handle following this morning’s disappointing September jobs report, which prompted increased speculation the RBA will cut rates in November.

 

USDCAD:

  • Spot 1.3160
  • USDCAD initially rose after last night’s rate decision, but reversed declines after Poloz’s extremely dovish comments at the press conference. The currency pair’s gained as much as 0.6% to 1.3163 earlier.

 

USDCNH:

  • Spot 6.7451
  • Offshore yuan looks poised to snap a 2-day gain, as USDCNH was 0.1% higher at 6.7462 earlier today.
  • The PBOC set its reference rate 0.02% stronger at 6.7311 this morning.
  • Analysts foresee further weakness for the yuan over the next few months, citing reasons such as a likely rate-hike in the US and seasonal demand for US dollars in China during year-end.
  • The currency is now just 1.3% off 6.8300 – the level at which China pegged the yuan to after the 2008 global financial crisis.

 

USDJPY:

  • Spot 103.71
  • The yen weakened against the dollar and is set to decline against it for the first time in 4 days; USDJPY rose 0.4% to 103.78.

 

GBPUSD:

  • Spot 1.2275
  • GBPUSD declined 0.4% to 1.2254 following news of Germany’s message that they will shun all negotiations before the UK invokes Article 50 and thus renewing concerns of a hard Brexit.

 

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