October 23, 2017

Daily Observations:

Asian equities mostly ended higher. Equities in Japan rallied following PM Abe’s election victory over the weekend. The US dollar gained as traders await the pick for the Federal Reserve chair and following last week’s tax overhaul developments. Gold weakened to a 2-week low. Crude oil gained after OPEC and its allies achieved record compliance to cuts in September.

Crisis in Catalonia:

Spanish Prime Minister Mariano Rajoy said his government plans to pass a package enabling them to dismiss Catalan President Carles Puigdemont and take over regional police and public airwaves within a week after the region’s leaders claimed a mandate for independence following an illegal referendum. The nation’s foreign minister has pledged that Catalan leaders won’t be arrested upon their ouster. However, that may be subject to change should Puigdemont announce Catalonia’s secession from Spain in the interim. Separatists have said Rajoy will regret this decision, and are planning to disrupt Spanish economic activity in protest.

Abe Triumphs:

Japan’s Liberal Democratic Party won big, retaining its two-thirds parliamentary super-majority in Sunday’s general election.  The victory bolsters Prime Minister Shinzo Abe’s chances of hanging on to the party leadership in a vote to be held in September 2018, which would leave him poised to become Japan’s longest-serving prime minister. Economic reforms may take a backseat for Abe at this juncture, who looks to prioritize revisions to Japan’s pacifist constitution, though he has shied away from previous pushes for change on this front. The result is seen as affirming continuity for Japanese fiscal and monetary policies.

China Oil Consumption:

Storage data gathered by satellite implies the amount of crude China is putting into storage is below what can be extrapolated from the nation’s customs and production data, Barclays Plc analysts wrote in an Oct. 23 note. That means it may be consuming more oil than official data indicate and that the global supply-demand balance is tighter than estimated.

Data from Ursa Space Systems Inc. implies inventories in the world’s largest importer expanded by about 360,000 barrels a day from April through August, equating to a year-to-date stockpile build of 87 million barrels, according to the note. That’s about two-thirds lower than the 1 million barrel-a-day rise government data suggests for the period, the bank said.

Singapore:

September headline inflation gained 0.4% from a year ago, in line with expectations and maintaining its prior month’s pace. Core inflation quickened to 1.5% over the same period, edging economists’ expectations of 1.4%.

In a speech in the US over the weekend, PM Lee Hsien Loon said Singapore’s economy should grow by close to 3% this year, and added that the manufacturing sector had a strong showing in the third quarter.

FX Updates:

USD/SGD:

Spot: 1.3626

USDSGD gained to a 2-week high Monday, following broad US dollar strength over the weekend. The key resistance level remains at 1.3700 – a break above will confirm a reversal of the major down trend since January.

AUD/USD:

Spot: 0.7809

AUDUSD retreated back to its 0.7800 handle earlier today, ahead of this week’s key inflation data.

A higher-than-expected CPI print will support an upward revision to interest expectations and will be supportive of the Australian dollar.

USD/CAD:

Spot: 1.2630

USDCAD advanced to its highest in almost 2 months following last Friday’s softer-than-expected inflation numbers. As a result, many analysts are not expecting the Bank of Canada to raise interest rates this Wednesday.

Expect USDCAD face major resistance at the August-high of 1.2778. To the downside, 1.2400 is the level to watch.

USD/CNH:

Spot: 6.6432

USDCNH’s time spent below the 6.6000 handle was short-lived, with the pair regaining back above it last week. Further consolidation is expected between the 6.6000 and 6.7000 handles.

USD/JPY:

Spot: 113.95

Then yen weakened against the dollar following PM Abe’s weekend election victory. USDJPY breached the 114 mark earlier on Monday, for the first time since July.

The major resistance level lies at 114.50 – a break above it could result in the currency pair embarking on a longer-term move upwards, with the double-top at 118.60 a realistic possibility within the next year.

GBP/USD:

Spot: 1.3172

GBPUSD remained capped around 1.3200 as a stronger US dollar negated the effects of some signs of progress in Brexit talks last Friday. European Council President Donald Tusk had confirmed that the 2 sides had hope to move onto trade talks in December while German Chancellor Merkel urged European partners to work with Britain to reach the deadline.

Sterling traders will be wary of GDP data due out this Wednesday, which is expected to show growth held steady in the third quarter.