October 26, 2016

Daily Observations:

Asian equities slid with US index futures as oil prices slid back below $50/bbl, and Apple Inc.’s results disappointed. The US dollar retreated slightly from 7-month highs, while gold gained to its highest in 2 weeks.

US:

  • The US Consumer Confidence Index slid to a 3-month low of 98.6 in October, from 103.5 last month, missing the consensus estimate of 101.5.
  • Consensus around a December hike strengthened, as the Fed’s San Francisco President John Williams told the Wall Street Journal it’s the best time for a hike, while BlackRock’s CIO Rieder said a move is certain.
  • According to Fed funds futures pricing data on Bloomberg, the odds of a rate-hike in December rose yesterday to 73%, from 71%.
  • The US dollar retraced from its strongest level in more than 7 months, with the Bloomberg Dollar Spot Index ending 0.1% lower.
  • The Treasury yield curve flattened on the back of weaker US data and a weak auction; 2yr yields rose 1bp to 0.86% while 10yr yields fell 1bp to 1.76%.
  • The S&P 500 Index fell 0.4%, as mixed forecasts from industry giants and weak consumer confidence data spurred concern over the economic outlook.
  • Blue chips Caterpillar Inc. and 3M Co. dropped after cutting their estimates, outweighing optimism from United Technologies Corp.’s and Procter & Gamble Co.’s earnings. Apple Inc. fell in after-hours trading as it reported sliding prices for its smartphones and forecast lower-than-expected profitability over the holiday period.

UK:

  • BOE Governor Mark Carney said in a testimony that there were limits to officials’ willingness to look beyond an overshoot of their inflation target, which helped pare losses to the pound which had tumbled before his address.
  • Carney’s comments last night could indicate further easing is unlikely in the near term.
  • Sterling has been under increasing pressure amid Brexit concerns and was undermined further after Scottish First Minister Nicola Sturgeon said the UK government didn’t appear to have a strategy for negotiations in place. The mounting prospect of a Fed-led rate-hike is also weighing on the pound, which has fallen 18% since the referendum.

Japan:

  • The overwhelming majority of economists surveyed by Bloomberg expect the BOJ to keep stimulus unchanged when the central bank meets on Oct 31 – Nov 1; the survey also indicated that most do not expect a reduction in JGB purchases anytime soon.

Australia:

  • Better-than-expected inflation data released earlier today has helped clam RBA fears over inflation expectations and lowered prospects of more easing by the central bank.
  • 3Q headline CPI rose 0.7% quarter-on-quarter and 1.3% year-on-year, improving upon last quarter’s 0.4% and 1.0% gains respectively, and exceeding the consensus estimates of 0.5% and 1.1%.
  • Interest-rate swaps on Bloomberg indicate that the probability the RBA will cut rates when it meets on 1st Nov has fallen to 5.5%, from 14.5% on Tuesday.

Precious Metals:

  • Spot gold gained 0.6% to $1,276.78/Oz, its highest level in over 2 weeks, on speculation that demand will accelerate before the Diwali religious festival in India, the world’s second-largest buyer of the metal.
  • Spot silver advanced as well, rising 0.7% to $17.8471/Oz earlier today. Silver holdings in the iShares Silver Trust, the biggest ETF backed by silver, were unchanged at 11,395 metric tons.

Oil:

  • Crude oil for December delivery fell 1.1% in New York to settle at $49.96/bbl, after Russia’s envoy at OPEC said output cuts “aren’t an option” for them.
  • According to a Bloomberg survey, US crude supplies probably rose 2 million barrels last week, ahead of EIA data tonight.

 

USDSGD:

  • Spot 1.3889
  • USDSGD fell 0.3% to 1.3876 earlier today, on the back of a weaker US dollar overnight.

 

AUDUSD:

  • Spot 0.7697
  • Following higher-than-expected price growth data, AUDUSD rallied 1.0% to 0.7709 earlier today, as the AUD strengthened against all of its major peers.
  • The currency pair is likely to resume its ascent to its year-to-date high of 0.7835.

 

USDCAD:

  • Spot 1.3350
  • USDCAD rose 0.4% to 1.3371, following yesterday’s whipsawing price moves due to Governor Poloz’s comments.
  • The effect of overnight USD weakness seems to have been outweighed by this morning’s weakness in oil; the currency pair looks poised to test the 1.3400 handle again.

 

USDCNH:

  • Spot 6.7785
  • The yuan was stronger today and is headed for only its second gain this month as most Asian currencies rose versus the USD today.
  • The PBOC strengthened its fixing for the first time this week, 0.06% stronger at 6.7705 to the dollar.
  • USDCNH was 0.2% lower at 6.7727 last night before paring back some of its declines earlier today.

 

USDJPY:

  • Spot 104.29
  • USDJPY retreated from a near-three month high of 104.87, to decline 0.5% back towards the 104 handle.
  • The next key resistance above comes in at 107.50, while 104.00 should act as a new-found support.

 

GBPUSD:

  • Spot 1.2163
  • GBPUSD was down by as much as 1.2% at 1.2083 before Governor Carney’s comments sparked a recovery back up to the 1.2200 handle.
  • The 1.2100 handle remains a key support; should it fail to hold and slide back down to the 1.1800 region is likely.

 

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