Spot values at a glance:
- US President Donald Trump tweeted that his Secretary of State Rex Tillerson is wasting his time trying to negotiate with North Korean leader Kim Jong Un, instead he said Tillerson should save his energy and that the US will “do what has to be done”.
- The president’s remarks on Twitter came a day after Tillerson acknowledged for the first time that the US is “probing” directly with the rogue nation. A State Department spokeswoman said there’s no contradiction in the US position.
- Friday’s PCE data for August in the US missed expectations. The PCE deflator, the Fed’s preferred measure of inflation, rose 0.2% month-on-month and 1.4% year-on-year, less than the median estimates of 0.3% and 1.5% respectively.
- In Europe, the September’s advance CPI reading disappointed as well, rising 1.5% from a year ago, compared to the 1.6% gain expected.
- A gauge for US manufacturing, the ISM, unexpectedly rose Monday to 60.8 in September, up from 58.8 in August. The expansion was at its fastest pace in 13 years, though in part because of effects from hurricanes Harvey and Irma. Analysts had predicted a decrease to 53.0.
US Tax Reform:
- Treasury Secretary Steven Mnuchin and other top White House officials pushed back against assessments that the Trump administration’s planned tax benefits will go mostly to the wealthy. Mnuchin said changes to the tax system being developed with Congressional Republicans “are meant to create middle-income tax cuts and also to make corporate and business tax competitive” in order to bring back more jobs and capital to the US.
- A study by the Tax Policy Center in Washington released last Friday estimated that over several years, taxes would go up for almost 30 percent of individuals with incomes between $50,000 and $150,000. It also said that more than half the benefits provided by the plan’s tax cuts would go to the top 1% of taxpayers.
- National Economic Council Director Gary Cohn said Sunday that the Trump administration’s proposed tax on offshore profits would be in the “10% range”.
Las Vegas Shooting:
- At least 59 are dead and more than 500 injured in the worst mass shooting in modern US history. Police identified the gunman as 64-year-old Stephen Paddock, who fired upon concert-goers in Las Vegas from a hotel room before turning the weapon on himself. The Islamic State claimed responsibility for the attack, though an FBI special agent said that the bureau had not reached that conclusion as of yet.
Crisis in Catalonia:
- Catalan separatist leaders signalled they may be moving toward a unilateral declaration of independence as early as this week after hundreds of activists were injured on Sunday as they sought to stop Spanish police from shutting down an illegal referendum.
- Catalan President Carles Puigdemont appealed to the EU for support as he pledged to inform the regional parliament of the result of the vote in the coming days. According to the Catalan government, 2 million Catalans backed independence out of 2.3 million votes cast in total.
- The EU on Monday refused to recognize the rebel region’s bid for independence, and said the Catalan matter must be dealt with under the Spanish constitution.
- The Canadian economy was little changed in August from the prior month, compared to a 0.1% rise predicted by economists and slowing from a 0.3% growth in July.
- Friday’s GDP release snapped an 8-month string of gains. Slumping oil and automobile production and a slowing housing market were among the biggest drags on growth.
- PMI data for September released over the weekend were mixed. The official gauge rose to 52.4 (vs. 51.6 est.), up from 51.7 in August.
- The Caixin version, however, fell to 51.0 (vs. 51.5 est.) from 51.6 the prior month.
- Spot 1.3655
- USDSGD extended gains to a 6-week high Tuesday, with the pair threatening to break out of its 2017 downtrend channel. A move above 1.3700 would confirm the technical breakout; the next resistance lies around the 1.3900 handle.
- According to analysts from Credit Suisse, the MAS is likely to remove its forward guidance of “an extended period” of neutral policy stance on expectations that growth will accelerate in the third quarter.
- Spot 0.7817
- AUDUSD continues to be buoyed by its 0.7800, but only just. A more dovish-than-expected RBA policy statement on Tuesday could just be the spark to drive the pair below 0.7800.
- A break below 0.7800 is likely to lead to a reversion back to its 200-day moving average of around 0.7650.
- The currency pair is expected to remain pressured with iron ore futures at a 3-month low.
- Spot 1.2530
- USDCAD gained above the 1.2500 mark Monday, amid ongoing USD strength and a pullback in crude oil prices, and closed above its 50-day moving average for the first time since May.
- The next resistance level above lies at 1.2778 – a 10-week high.
- Spot 6.6802
- Offshore yuan extended losses, weakening beyond 6.6700 Monday at the start of a week-long national holiday in China.
- The yuan last Friday registered its worst weekly drop since Jan 2016, and indicated that the PBOC‘s recent strategy of setting stronger-than-expected fixings is having little success in containing losses.
- USDCNH is likely to find strong resistance around the region between 6.7000 (a strong psychological level) and 6.7165 (the 50% Fibonacci retracement level since January).
- Spot 113.07
- USDJPY’s bias remains to the upside, having gained above its 200-day moving average for the first time since July.
- The next key resistance to be tested lies at the 6-month high of 114.48.
- Spot 1.3249
- GBPUSD retreated to a 2-week low Tuesday, following weaker-than-expected September PMI data.
- The pair has come under pressure in recent weeks from a strengthening USD as well continued uncertainty in the country’s Brexit talks.