Spot values at a glance:
Asian stocks rose together with US index futures, while the US dollar rebounded from its lowest in more than 2 years, as Hurricane Irma’s force waned and North Korea refrained from launching a missile test over the weekend. The UN prepares to vote on tougher North Korean sanctions today. Safe haven assets such as the Japanese yen and gold retreated.
- The US is pushing for a Monday vote on a draft UN Security Council resolution to impose further penalties on Kim Jong Un’s regime. Japan has backed the US proposal, which includes an effort to go after North Korea’s access to oil – a move that’s unlikely to be supported by China, its primary supplier.
- Instead of another missile test to commemorate its government’s 69th anniversary, as South Korean officials had feared, Kim Jong Un reportedly hosted a party for the scientists and engineers involved with the nuclear project.
- North Korea “is closely following the moves of the US with vigilance,” its state-run Korean Central News Agency said today, citing a statement by the Ministry of Foreign Affairs. “In case the US eventually does rig up the illegal and unlawful ‘resolution’ on harsher sanctions, the DPRK shall make absolutely sure that the U.S. pays a due price,” it said.
- On Sunday morning in the US, Hurricane Irma hit Florida before making a second landfall in the afternoon. Miami’s equivalent of Wall Street, Brickell Avenue, was turned into a river as Irma arrived. A shift in the storm put the west coast of the state, including Tampa Bay, at acute risk, with evacuation orders spreading throughout the region on Saturday. Roughly 2 million residents have lost power; Florida Power & Light warned that it will be a matter of weeks before electricity is fully restored. According to Bloomberg News, more than $1 billion in crops could also be imperiled by Irma while experts estimate that the storm surge could reach up to 15 feet in parts of the state.
- New York Fed President Bill Dudley said back-to-back hurricanes in the third quarter could temporarily influence the timing of the next interest-rate increase, although above-trend growth does warrant continued gradual rate hikes.
- Pimco’s chief investment officer Dan Ivascyn echoed Dudley’s comments, and said Irma and Harvey have reduced the chances of a rate hike by the Fed in December. Odds are further impacted by the potential debt ceiling face-off later this year as well.
- According to data compiled by Bloomberg, the implied probability of a rate hike in December is about 29%.
- The benchmark US 10yr Treasury yield rose 4bps earlier this morning, as Treasuries fell after North Korea refrained from an expected missile test over the weekend.
- The US dollar rose against most major peers after Hurricane Irma, while devastating, didn’t reach the feared Category 5 storm that some had anticipated. The Dollar Index gained 0.3% to 91.616, but still remains below the key level of 92.
- US equities closed mainly lower Friday, as investors traded cautiously ahead of a potential missile test by North Korea and Hurricane Irma’s arrival over the weekend. Index futures rose earlier today though, along with Asian stocks, after Irma’s forced waned and North Korea refrained from launching a missile test.
- The national statistics agency released figures Friday that showed the labor market is in its longest run of employment gains since the 2008-2009 recession, with signs also emerging that sluggish wages are also on the rise and companies are quickly running out of capacity.
- 22,200 jobs were added in August, accelerating upon the prior increase of 10,900 and beating the consensus forecast of a 15,000 rise. The unemployment rate ticked lower to 6.2%, from 6.3% in July. The total employment gain masked a sharp drop in full-time work, which was down by 88,100 in August, compared to a 35,100 rise in July. Part-time employment was up 110,400, reversing a 24,300 drop in the previous month.
- Annual average hourly wage gains hit 1.8%, the highest since October 2016, but still remain below the average of 2.6% since 1998. It was also reported that industrial production has reached 85% of capacity, the highest since 2007.
- Industrial production in July rose 0.2% month-on-month and 0.4 year-on-year, in line with expectations. Manufacturing production accelerated, gaining 0.5% from a month ago and 1.9% from a year before; both exceeded their median estimates.
- China’s PPI in August accelerated to 6.3% from a year ago, exceeding the median estimate of 5.7% and gaining pace from July’s increase of 5.5%. CPI over the same period rose 1.8%, exceeding the 1.6% predicted and July’s 1.4% rise. According to Bloomberg News, the surprise strength gives support for global inflation spanning from metals to fuel and shows the effects of resilient domestic demand and reduced supplies of some commodities. China’s authorities have been closing mills and smelters to cut excessive industrial capacity and help curb pollution, in turn straining production of metals such as aluminium and steel.
- Machine orders in July rose 8.0% month-on-month but fell 7.5% year-on-year, compared to their respective consensus estimates of 4.1% and -7.8%. August’s month-on-month rise marks the first rise in 4 months.
- Spot gold retreated 0.9% to $1,335.03/Oz earlier today after North Korea refrained from launching an expected missile test over the weekend.
- Long-term momentum continues to be biased to the upside, having broken the important psychological resistance of $1,300/Oz 2 weeks ago. However a pullback to the $1,325/Oz level is to be expected, following the precious metal’s rapid rise over the past month.
- The next key resistance level to be tested lies at $1,375.34/Oz – a 3.5-year high. The precious metal should be supported above the $1,325/Oz as long as geopolitical tensions within the Korean peninsula remain heightened.
- Silver for immediate delivery declined as well, falling 0.9% to $17.8100/Oz to reach a 1-week low.
- Crude oil futures gained 0.8% to $47.87/bbl earlier today, following Friday’s 3.3% slump. Oil fell on Friday by the most in 2 months amid speculation that Irma may crimp demand for gasoline and other transportation fuels.
- Fears were eased earlier today as Irma weakened after hitting the Florida coast and as Gulf Coast refining continued to recover following Hurricane Harvey.
- Russia is drawing up rules about how to conduct initial coin offerings (ICOs), breaking ranks with China after President Vladimir Putin signalled his approval for digital currencies. While China slapped a blanket ban on ICOs this month, the government in Moscow plans to regulate cryptocurrencies like securities rather than outlawing them, Finance Minister Anton Siluanov told reporters on Friday. That marks a full reversal from his ministry’s proposal last year to punish people who use digital currencies with up to 7 years in jail.
- Spot 1.3431
- USDSGD recovered back above the 1.3400 handle last Friday, and extended its pullback by 0.2% to 1.3446 earlier today following a relief rally in the US dollar.
- The currency pair bounced off its key support level of 1.3350 last Friday. Further downside for the pair should be capped for the time being. The next support below comes in at 1.3150.
- Spot 0.8046
- AUDUSD retreated 0.3% to 0.8033, extending last Friday’s pullback from the 0.8100 handle.
- The pair remains above the 0.8000 psychological and the momentum continues to remain to the upside. The 2015-high of 0.8164 is expected to be tested over the medium-term.
- Spot 1.2142
- USDCAD declined 0.2% today to 1.2140, with the Canadian dollar one of the few currencies to strengthen against the USD today, following last Friday’s better-than-expected Canada employment data.
- Having broken below the previous important 1.2400 handle last week, the currency pair looks set to test the next support of 1.1920 over the coming months.
- Spot 6.5137
- The PBOC strengthened its reference rate for the eleventh consecutive day – its longest run since 2011, to 6.4997 per US dollar earlier today.
- The PBOC will effectively remove a reserve requirement for trading foreign currency forwards — a move that may slow the pace of yuan appreciation after its biggest 2-week surge in at least a decade, according to Bloomberg News.
- USDCNH rose 0.6% to 6.5334 to gain back above the psychological 6.50 handle today.
- Spot 108.42
- USDJPY pared most of Friday’s decline, which saw the currency pair trade below 108 for the first time since last November. The yen weakened by as much as 0.7% against the US dollar to 108.27.
- The current momentum remains stronger to the downside, with a decline to the next support of 105 possible should the 108 handle fail to hold. To the upside, the 1-month resistance level around 111 is likely to cap future gains, but on a longer term basis, 115 represents a more significant level.
- Spot 1.3182
- GBPUSD declined 0.2% to 1.3174 to pare some of Friday’s 1.0% gain, and look set to snap a 4-day winning streak which has seen the pound strengthen almost 2% against the greenback.
- Immediate resistance should come in at 1.3267, last reached in early August.