October 5, 2016

Daily Observations:

Global bonds declined and stocks came under renewed pressure, while the euro gained after concerns regarding the ECB tapering asset purchases as it ends QE emerged. Emerging-market currencies fell, while gold slid by its most in 3 years.

Europe:

  • The ECB will likely taper its bond purchases before QE ends, unidentified Eurozone bank officials told Bloomberg News yesterday, and may do so in steps of 10 billion euros. They did not exclude the fact that QE could still be extended past the current end-date of March 2017 at the current full pace of 80 billion euros a month.
  • This latest development is clearly a surprise for the market as the during the ECB’s last meeting, there was genuine concern that they had exhausted the universe of purchasable assets.
  • The ECB’s “taper tantrum” goes underway, according to a tweet by Bill Gross; he added he is bearish on global bonds and is currently short German bunds.

US:

  • Richmond Fed President Jeffrey Lacker urged the Fed to hike in order to stave off a likely pickup in inflation that would force bigger increases later.
  • Chicago Fed President Charles Evans, who has been one of the committee’s biggest proponents of keeping rates low, said he expects the Fed to raise rates before then end of the year. He added that he’d like to see more explicit communication around the conditions that need to be met for future moves.
  • The S&P 500 Index fell 0.5; higher dividend-yielding companies leading declines, with utilities and telecommunications shares falling more than 1.6% amid concern over the prospect of higher interest-rates. Banks advanced.
  • The dollar gained overnight, with the Bloomberg Dollar Spot Index climbing 0.6% before paring back some of its advance this morning.
  • The benchmark 10yr yield rose 6bps to 1.69%. The bond market selloff showed investors are starting to doubt the resolve of central banks in Europe to Japan to maintain accommodative policies, coupled with the increasing likelihood of a rate hike in the US later this year.

Australia:

  • Retail sales in August rose 0.4% from a month earlier, beating expectations of 0.2%.

China:

  • Goldman Sachs has sounded a warning about the outlook for China’s property market, saying that it sees growing vulnerabilities across the industry and that any downturn will pose a challenge for metals, especially iron ore and steel.

Precious Metals:

  • Spot gold plunged 3.2% $1,266.79/Oz, the most in almost 3 years and falling below the $1,300/Oz support for the first time since June, amid mounting concerns that global interest rates could start rising soon.
  • Gold’s next support lies around the $1,250/Oz handle, while its 200-day moving average comes in at $1,258/Oz.
  • Silver for immediate delivery slumped 5.6% to $17.7260/Oz earlier today, and is on course to test the next support at the $17/Oz handle.

Oil:

  • Crude oil for November delivery jumped 1.3% to $49.30/bbl today, after weekly industry data signalled US crude stockpiles declined by 7.6 million barrels last week.
  • According to Venezuela’s oil minister, the recent OPEC oil output accord could trim output by 1.2 million bpd and boost prices by as much as $15/bbl.

 

USDSGD:

  • Spot 1.3708
  • USDSGD soared 0.2% to its post-Brexit high at 1.3720 earlier today as a rise in US yields overnight helped lift to greenback versus its peers.
  • A strong break above today’s high and the currency pair could experience further gains to the next resistance at 1.3850.

 

AUDUSD:

  • Spot 0.7634
  • AUDUSD fell 0.8% to 0.7606 amid USD strength, although the currency pair pared losses after better-than-expected retail sales numbers this morning.

 

USDCAD:

  • Spot 1.3177
  • USDCAD rose 0.4% 1.3216 last night, before paring gains back below the 1.3200 handle this morning as renewed bullishness in oil prices buoyed the Canadian dollar.

 

USDCNH:

  • Spot 6.6955
  • USDCNH gained 0.2% to 6.6966, and looks poised to test the key 6.7000 again soon.
  • China markets remain shut for a week-long national holiday.

 

USDJPY:

  • Spot 102.86
  • The yen extended losses against the dollar by a further 0.5% to the 103 handle.
  • The downward trend for USDJPY looks to have been breached; the next resistance for the currency pair lies at the 104 handle.

 

GBPUSD:

  • Spot 1.2733
  • GBPUSD extended losses, declining lower by 0.4% to 1.2720 – the pair’s lowest level in 31 years, following Prime Minister May’s comments that financial services would get no special favors in EU exit talks.

 

 

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