Spot values at a glance:
Asian equities took another leg higher after the S&P 500 Index rose to a record high and Treasuries tumbled, with less damage than originally feared from Hurricane Irma supporting the case for a gradually improving US economy. The UN Security Council on Monday approved watered-down sanctions to punish North Korea for its latest missile and nuclear tests.
- The US softened its proposed sanctions for North Korea, removing an oil embargo and freeze of Kim Jong Un’s assets, in a bid to make the potential punishments more palatable to China and Russia. The UN Security Council voted to approve the package, which includes a cap on crude and refined product shipments to North Korea, on Monday evening in New York.
- North Korea appears to be stepping up efforts to secure bitcoin and other cryptocurrencies, which could be used to avoid trade restrictions including new sanctions approved by the UN. Hackers from Kim Jong Un’s regime are increasing their attacks on cryptocurrency exchanges in South Korea and related sites, according to a new report from security researcher FireEye Inc.
- Hurricane Irma weakened as it moved past Tampa on Monday, leaving in its wake a state that avoided the worst predictions of its destruction by sea and storm. By one estimate, the cost of total damages dropped to $49 billion from $200 billion earlier. Irma was expected to soften to a tropical storm Monday morning and a tropical depression by afternoon, the National Hurricane centre said in an advisory.
- The S&P 500 Index closed at a record high (+1.08%) after North Korea didn’t launch a missile and the estimated damages related to Hurricane Irma were slashed. The Dow Jones Industrial Average (+1.19%) and Nasdaq Composite (+1.13%) rallied as well.
- Leuthold Weeden Capital Management Chief Investment Strategist Jim Paulsen wrote that this year’s decline of the dollar and longer-term borrowing costs is a “powerful one-two punch” that should keep the economy humming. Paulson cited the ratio of an index of raw materials to a 4-week average of initial jobless claims, an economic gauge known as the Boom-Bust Barometer at Yardeni Research, as showing that stocks have a solid foundation.
- The amount of negative-yielding debt globally has risen back above $10 trillion for the first time since October, according to a Bloomberg Barclays fixed-income index, signalling that central banks may not be able to withdraw from their extraordinary stimulus measures as soon as they have suggested given that inflation has slowed markedly. According to Bloomberg News, central bank balance sheets continue to expand by about $300 billion a month, which is money that ultimately finds its way into riskier assets such as stocks.
- The US dollar enjoyed its biggest 1-day gain in more than a month, as measured by the Bloomberg Dollar Spot Index (+0.6%), which tracks the greenback against 10 major peers. The Dollar Index advanced 0.6% as well, though it still remains below the key resistance level at 92.
- The benchmark 10yr Treasury yield jumped 8bps to 2.13%, on the back of surging risk appetite overnight following abating geopolitical tensions in North Kora and a waning Hurricane Irma.
- For the past decade, traders have been conditioned to expect central banks to both telegraph policy tweaks ahead of time and offer a thorough rationalization of those shifts at the time of implementation. Canada’s central bank provided neither when hiking its benchmark rate to 1% on Sept. 6. Monetary policy makers hadn’t spoken publicly since July 12, when they delivered their first increase in almost 7 years, nor was the latest decision followed by a press conference.
- Theresa May’s plans for taking Britain out of the EU remain on track after members of Parliament cleared the way for her Brexit law to advance but threatened to re-write it later. In a vote after midnight, lawmakers agreed to allow the EU withdrawal bill to continue its progress through Parliament, by 326 votes to 290. The prime minister won after her government promised to discuss critics’ concerns before they have to vote again, and to consider allowing more time for the next stage of debates on the law.
- Chinese authorities lifted the reserve requirement rule on currency forwards, which had made it more expensive to short the yuan, a loosening of capital controls as outflow pressure abates. Both the onshore and offshore yuan retreated against the dollar on Monday in the wake of the announcement.
- Australia’s lenders could be sitting on A$500 billion of “liar loans,” or mortgages obtained on inaccurate financial information, according to an estimate from UBS Group AG. A survey by the firm of 907 Australians who took out a mortgage in the last 12 months found only 67% stated their application was “completely factual and accurate,” down from 72% the previous year. The most common inaccuracies were overstating income and understating living expenses, the survey found.
- Spot gold slumped 1.6% earlier to $1,325.53/Oz, on the back of waning safe haven demand and increasing risk sentiment after the damage from Hurricane Irma was reported to be less than originally feared. Geopolitical tensions have eased off as well, further dampening the allure of gold as a safe haven.
- Long-term momentum continues to be biased to the upside, having broken the important psychological resistance of $1,300/Oz 2 weeks ago and should now act as a strong support level.
- The next key resistance level to be tested lies at $1,375.34/Oz – a 3.5-year high. The precious metal may be supported above $1,325/Oz for now, as long as geopolitical tensions within the Korean peninsula remain heightened.
- Silver for immediate delivery declined as well, falling 0.7% to $17.7110/Oz to reach a fresh 1-week low.
- Crude oil futures held near an overnight gain of 1.2% to $48.07/bbl, as Hurricane Irma weakened further after moving inland and as Gulf Coast refining continued to recover following Hurricane Harvey.
- The hurricanes have rattled energy markets, with Irma shutting Florida fuel stations and ports and Harvey earlier halting about 25% of the nation’s refining capacity. Goldman Sachs Group forecasts the 2 storms will initially impact crude demand by about 600,000 barrels a day, though the recovery will likely raise consumption and offset that loss.
- China struck another blow against cryptocurrencies on the heels of last week’s ban on initial coin offerings, or ICOs. The world’s second-largest economy plans to ban the trading of digital currencies like bitcoin over exchanges, while continuing to allow over-the-counter transactions.
- Spot 1.3455
- USDSGD extended its rebound from the key support level of 1.3350, and gained 0.2% to 1.3477 earlier today on the back of the US dollar’s continued relief rally.
- Some resistance may start to filter in around the 1.3500 handle.
- Spot 0.8011
- AUDUSD declined 0.7% back to its 0.8000 handle earlier today and continues to remain under selling pressure which would likely intensify should the pair fall below the psychological 0.8000.
- Conversely, should 0.8000 hold, a retest of the 2015-high at 0.8164 is possible.
- Spot 1.2110
- USDCAD erased an overnight gain to remain largely unchanged on the day, just above the 1.2100 handle.
- The Canadian dollar was alone among major currencies to outperform a rallying USD yesterday, fuelled by diverging bond yields.
- 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 medium term.
- Spot 6.5462
- The PBOC weakened its reference rate for the first time in 12 days, by 0.43% to 6.5277 per US dollar earlier today.
- USDCNH extended its previous session’s rebound from an 18-month low, and gained 0.3% to 6.5518 earlier today after the PBOC removed a 20% reserve requirement ratio on FX forwards, thus making it less expensive to bet on yuan declines.
- Spot 109.32
- USDJPY gained almost 1% earlier today to extend its reversal from a 10-month low.
- The 1-month resistance level around 111 is likely to be tested next; on a longer term basis, 115 represents a more significant level.
- Spot 1.3170
- GBPUSD retreated back below its 1.3200 handle last night, falling 0.4% to a session-low of 1.3161.
- The pair pared some of its decline earlier today, supported by the latest positive development over the Brexit Bill timetable after Parliament passed the EU Withdrawal Bill by 326 to 290 votes.
- Resistance remains at 1.3267, last reached in early August.