October 24, 2016

Daily Observations:

The US dollar strengthened versus all of its major peers as investors weighed prospects for a US rate hike. Asian stocks were mixed as indices in Japan and Australia were lower, whereas equities in China, Singapore and Hong Kong gained. The yuan continued to tumble as it approached a record low in offshore trading, Oil and gold retreated.

US:

  • San Francisco Fed President John Williams said he’d support one rate-hike in 2016 and a few more next year, though he added that he’d be unperturbed if inflation rose above the Fed’s 2% target.
  • The S&P 500 Index was little changed on Friday after erasing an early selloff amid a flurry of M&A activities involving AT&T, Time Warner and tobacco companies; the Nasdaq Composite Index rose 0.3%, buoyed by positive earnings reports from Microsoft and PayPal.
  • The US dollar continues to strengthen; the Bloomberg Dollar Spot Index closed at its highest level since March last Friday, and added another 0.2% earlier today.
  • The Treasury yield curve flattened further on Friday, with the benchmark 10yr yield down 2bps to 1.74% while the 2yr yield remained little changed.

Canada:

  • Retail sales in August slipped 0.1% month-on-month, worse than the 0.3% rise expected while July’s 0.1% drop was revised lower to 0.2%.
  • Headline CPI in September rose 1.3% from a year earlier, lower than the 1.4% projected. Core CPI managed to meet expectations, gaining 1.8%.

Japan:

  • Exports last month declined 6.9% year-on-year, better than the 10.8% drop expected. Imports over the same period fell 16.3%, not as bad as the 17.0% estimated.
  • Despite faring better than estimates, this morning’s trade data marked the 12th consecutive month of falling exports, rounding out a rough year for manufacturers struggling with a stronger yen and soft global demand.

Australia:

  • According to Australian Financial Review reports over the weekend, the National Australia Bank is said to have tightened Australian mortgage standards in 600 towns, and Westpac is set to follow suit as property market risks continue to grow.
  • A Bloomberg Macro View report said that the RBA’s concern about housing will likely outweigh any worries about low inflation should CPI due this Wednesday be weak.

China:

  • China’s Communist Party started its four-day Sixth Plenum of 18th Party Congress, where the agenda will be institutionalizing President Xi’s anti-corruption campaign.

Precious Metals:

  • Spot gold was lower by 0.3% earlier today at $1,263.25/Oz, after retreating back below its 200-day moving last Friday. Its failure to hold above the 200-day moving average could indicate more weakness to come.
  • Mark Mobius said gold is set to advance as much by 15% before the end of next year as the Fed looks set to go slow on increasing interest rates and the dollar remaining subdued.
  • Silver for immediate delivery slipped 0.5% to $17.4674/Oz earlier today, and could test its 200-day moving average of $17.3432/Oz soon.

Oil:

  • Crude oil for December delivery retreated earlier today and was 0.7% lower at $50.51/bbl, after Iraq yesterday balked at joining OPEC in output cuts, jeopardizing a final deal to cut production.
  • Data from Baker Hughes reported an increase in rig count, the 17th consecutive rise.

 

USDSGD:

  • Spot 1.3935
  • USDSGD was 0.1% weaker earlier at 1.3922 ahead of Singapore CPI data due later today.
  • According to a note to its clients, BoAML said that the risks are skewed towards a weaker SGD due to rising pressure on the central bank to ease further.
  • The psychological handle of 1.4000 remains within striking distance.

 

AUDUSD:

  • Spot 0.7603
  • AUDUSD was little changed today, following Friday’s 0.8% decline to 0.7608.
  • Risks remain skewed to the downside, following last week’s poorer-than-expected jobs report.

 

USDCAD:

  • Spot 1.3356
  • USDCAD broke through a key resistance on Friday, closing 1.4% higher at 1.3332 and extended gains further by 0.4% earlier today to reach a 7-month high of 1.3379.
  • With only a 13% odds of a rate-cut in December, the risk of a weaker Canadian dollar continue to remain high. The reasonable target of 1.3500 should be reached soon.

 

USDCNH:

  • Spot 6.7804
  • Offshore yuan approached a record low as the PBOC continues to signal tolerance for a weaker currency against the dollar.
  • USDCNH rose as much as 0.2% earlier today to 6.7842, close to the historic high of 6.7850 in 2010.
  • The PBOC set its reference rate 0.2% weaker at 6.7690 this morning.

 

USDJPY:

  • Spot 103.93
  • USDJPY continues its struggle with the 104 level, with strong sellers of the yen coming in at the aforementioned handle.
  • Risk sentiment continues to remain under pressure amid continued weakness in the yuan and weaker oil prices, thus keeping the safe-haven yen somewhat underpinned.
  • USDJPY was 0.2% higher at 104.00 earlier today.

 

GBPUSD:

  • Spot 1.2199
  • GBPUSD was 0.4% lower at an intraday low of 1.2186 today, as the currency pair continues to consolidate within the 1.2100 – 1.2350 range over the past 2 weeks.
  • The UK High Court will allow parliament to vote on details for any exit agreement with the EU which has dampened PM May’s hard-line and hard Brexit rhetoric which in turn offers support to then pound. However, Article 50 should still get triggered by March 2017 and parliament cannot block this and thus uncertainty for the medium to longer term leaves the pound vulnerable to more weakness.

 

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