October 28, 2016

Daily Observations:

The global bonds selloff deepened as 10yr sovereign bonds in the US, Australia and New Zealand all rose to their highest levels since May. Asian stocks held near the lowest levels in more than a week amid speculation major central banks are moving closer to reining in stimulus. Crude oil held below $50/bbl while the US dollar pared some of its gains after rallying overnight.

US:

  • Durable goods orders in September slipped 0.1% month-on-month, faring worse than the zero growth projected by analysts. Initial jobless claims fell by 3,000 last week, less than the 5,000 drop predicted. Pending home sales last month rose 1.5% from August, reversing a 2.5% drop prior and exceeding the median estimate of 1.0%.
  • This month’s sell-off in global bonds deepened following better-than-expected GDP data in the UK and comments from the BOJ that longer-term yields may rise. Treasuries joined the bond rout with the benchmark 10yr yield soaring 6bps to 1.86%.
  • A US 7-year note auction last night nevertheless drew decent demand, and direct and indirect bidding was robust, suggesting a resilient investor base.
  • The US dollar continued to rally, with the Bloomberg Dollar Spot Index which tracks the greenback’s performance against 10 major components, rose 0.3% to a seven-month high in New York before paring some of its gains earlier this morning.
  • The S&P 500 Index fell 0.3%, dropping for a third day; optimism on better-than-forecasted profits from companies including Bristol-Myers Squibb Co. and Dow Chemical Co, were tempered by declines in United Parcel Service Inc. and Simon Property Group Inc. after they reported earnings. Amazon slumped 5.8% in extended trading after it reported worse-than-expected earnings.
  • Utilities and consumer staples slipped as a rout in bonds damped demand for equities with high dividend pay-outs.

UK:

  • The UK economy in the third quarter this year grew 0.5% quarter-on-quarter and 2.3% year-on-year, beating the median forecasts of 0.3% and 2.1% respectively. The better-than-expected expansion was driven by a surge in the services sector, which helped offset declines in construction and production.

Japan:

  • BOJ Governor Kuroda commented that longer-term rates may rise even as he doesn’t see an immediate need to alter rates. In addition, he also stated his preference for the yield curve to steepen.
  • The jobless rate in September fell to 3.0% from 3.1% prior, while the job-to-applicant ration rose to 1.38 from 1.37.
  • Nationwide headline CPI fell 0.5% year-on-year, as expected. Core CPI, which excludes food and energy prices, was stagnant from a year earlier, missing the consensus estimate of a 0.1% rise. Household spending declined 2.1% year-on-year last month, less than the 4.7% drop expected.
  • The BOJ’s policy board may revise its inflation outlook and projected time frame for hitting its 2% inflation target when it meets next week, as it has been trying for more than 3 years to reach that goal with extraordinary monetary easing. The current timeframe to hit the target is by Mar 2018.

Australia:

  • The global selloff in debt markets this month has combined with a paring of RBA easing bets to fuel Australia’s worst government bond losses in more than 7 years. Investors have lost 1.8% so far in October, set to be the worst month since May 2009.

Precious Metals:

  • Spot gold continued to trade within a narrow range around its 200-day moving average. The precious metal was little changed from its previous session, and has maintained within the $1,260/Oz – $1,275/Oz range for most of the week.
  • As the yuan retreats, China is taking in more gold. According to data from the Hong Kong Census and Statistics Department, net purchases rose to 44.9 metric tons in September, up from 41.9 metric tons in August.
  • Silver for immediate delivery mimicked gold’s trading patter as well, staying bound between $17.50/Oz -$18/Oz.

Oil:

  • Crude oil for December delivery rose 1.1% to $49.72/bbl following a Reuters report said that Saudi Arabia and its Gulf OPEC allies are willing to cut 4% from their peak oil output, citing sources familiar with the matter.

 

USDSGD:

  • Spot 1.3937
  • USDSGD rose 0.3% to a new high 7-month high of 1.3964 last night, before paring back some of its gains earlier this morning.
  • 1.4000 remains the next resistance target for the currency pair.

 

AUDUSD:

  • Spot 0.7604
  • AUDUSD slipped 0.5% to a one-week low of 0.7580 amid increasing speculation that the RBA will hold off cutting rates when it meets next Tuesday.

 

USDCAD:

  • Spot 1.3383
  • USDCAD briefly breached the 1.3400 handle during New York hours before retracing back below; the currency pair is still holding on to gains of around 0.3%
  • Goldman Sachs has projected the currency pair to strengthen beyond 1.3500 by year-end and to 1.4000 in 12 months.

 

USDCNH:

  • Spot 6.7896
  • USDCNH tested the 6.8000 earlier today before a stronger-than-expected fixing from the PBOC caused the currency pair to reverse course; USDCNH fell 0.1% to a daily low of 6.7875.
  • The PBOC weakened its reference rate by 0.18% to 6.7858 to the dollar.
  • Many analysts felt that the stronger-than-expected fixing could signal an attempt by authorities to defend the 6.8000 level.

 

USDJPY:

  • Spot 105.12
  • USDJPY maintained near last night’s high of 105.35, following this morning’s inflation numbers which further strengthened the case for the BOJ to keep its monetary easing program unchanged when it meets next week.
  • The next key resistance above comes in at 107.50, while 104.00 should act as a new-found support.

 

GBPUSD:

  • Spot 1.2183
  • GBPUSD initially gained yesterday afternoon on the back of stronger-than-expected UK 3Q GDP, but eventually reversed course and slid 0.9% lower to 1.2149 with investors and traders preferring to fade sterling’s rally with Brexit concerns on their minds.
  • 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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