Spot values at a glance:
Asian equities pared most of their earlier-session declines, following a North Korea missile launch earlier today, as investors become accustomed to a cycle of provocations followed by diplomatic censure and sanctions that fall short of shutting down the dictatorship. The US reported stronger-than-expected August inflation data. The Bank of England signalled the possibility of stimulus reduction yesterday.
- North Korea fired its second missile over Japan in as many months earlier today, a fresh provocation that comes shortly after the United Nations approved harsher sanctions against Kim Jong Un’s regime. The South Korean military conducted a firing drill on the missile, according to Yonhap. North Korea earlier vowed to sink Japan and turn the US into “ashes and darkness”.
- US Secretary of State Rex Tillerson is pressuring China to keep an oil embargo, a “very powerful tool,” as a potential option. China’s ability to enforce sanctions against its neighbour have been hampered by smugglers working on the ground and at sea.
- Consumer prices in August rose 0.4% month-on-month and 1.9% year-on-year, accelerating from 0.1% and 1.7% increases in July, and surpassing the median estimates of 0.3% and 1.8% respectively.
- Core CPI gained 0.2% from a month ago and 1.7% in the past 12 months; the former was in line with estimates while the latter beat the consensus forecast of 1.6%. The 0.2% rise in core gauge ends a 5-month streak of weaker-than-expected readings, and may soothe some concerns that inflation is slowing more broadly.
- According to Bloomberg pricing data, the odds of a Fed hike rate by year-end rose to around 50%, following stronger-than-expected August inflation data. Goldman Sachs economists have increased odds of a third Fed hike this year to 60%, from 55%.
- The Treasury curve flattened, with 2yr yields climbing while 10yr yields dipped slightly. The benchmark 10yr yield rose 2bps to 2.18% in New York, paring an initial gain as much as 6bps.
- The Dow Jones Industrial Average closed at a record high (+0.20%) for a third session in a row even as the S&P 500 Index (-0.11%) and Nasdaq Composite (-0.48%) ended lower. Tech shares were the major drag for the day.
- The US dollar weakened for the first time this week amid renewed geopolitical tensions and after yielding more than 1% to the pound, even as US inflation data in August rose more than expected. The Bloomberg Dollar Spot Index retreated 0.3%, while the Dollar Index shed 0.4% back towards the 92 level.
- The Bank of England struck a hawkish tone on Thursday, with Governor Mark Carney warning that a hike would likely be appropriate “in the coming months.” The British pound was the best-performing G-10 currency on the day as traders pulled forward their expectations for the timing for tightening.
- The BOE revealed Thursday that for most of the 9-member Monetary Policy Committee, “some withdrawal of monetary stimulus was likely to be appropriate over the coming months in order to return inflation sustainably to target.” And the governor himself confirmed that he is one of them in a pooled television interview.
- Spot gold gained by as much as 0.7% to $1,334.42/Oz earlier today on the back of renewed geopolitical concerns in North Korea. However increased odds of a Fed rate-hike later this year may cap gains.
- Long-term momentum continues to be biased to the upside, with gold having broken the important psychological resistance of $1,300/Oz 2 weeks ago. $1,300/Oz now acts as a strong support level while the key resistance above lies at $1,375.34/Oz – a 3.5-year high.
- Silver for immediate delivery was little changed on the day, paring an overnight drop to a 2-week low.
- Crude oil futures briefly advanced above $50/bbl, before paring gains to close 1.2% higher on the session at $49.89/bbl last night. Futures were weaker by about 0.3% earlier today.
- OPEC and the International Energy Agency boosted demand forecasts, signalling the surplus that has weighed on prices may shrink further.
- The key resistance resides at $50.50/bbl; a break above it could signal a move higher to $54/bbl.
- Bitcoin fell by as much as 14% against the dollar after online exchange BTC China halted new account registrations and said it would stop handling trades at month-end. A Chinese business news website is reporting that all bitcoin trading platforms in the world’s second-largest economy have been directed to shut down at the end of September.
- According to a Bloomberg report, some analysts are speculating that the onslaught of bearish commentary and China’s crackdown on cryptocurrencies is being fuelled by political pressures emanating from Washington. Whatever the proximate cause, bitcoin is now in a bear market and on its longest losing streak in more than a year.
- Spot 1.3471
- USDSGD slid 0.3% to 1.3461, reversing from a 1-week high hit last night.
- The resistance remains around the 1.3500 handle while the key support below lies at 1.3350.
- Spot 0.7988
- AUDUSD declined 0.6% to a session-low of 0.7956 last night, following positive US inflation numbers.
- With odds of an earlier RBA rate hike increasing, the currency pair is expected to be supported despite a strengthening greenback.
- A retest of the 2015-high at 0.8164 is possible.
- Spot 1.2178
- USDCAD remain little changed, as the effects of stronger US inflation data were negated by the strengthening price of crude oil.
- Having strengthened more than 11% in 4 months against the dollar, the Canadian dollar looks poised for a pullback over the medium term. The first point of resistance is likely to come in at the 1.2400 handle.
- The key support at 1.1920 is likely to hold.
- Spot 6.5541
- The PBOC strengthened its reference rate for the first time in 4 days, by 0.06% to 6.5423 per US dollar earlier today.
- USDCNH retreated back to the 6.5500 handle earlier, pulling back from a 2-week high.
- Spot 110.37
- USDJPY erased most of its earlier decline spurred by North Korea’s missile launch over Japan as traders refocus on the stronger-than-expected US inflation data released last night.
- The 1-month resistance level around 111 remains the handle to be tested next; on a longer term basis, 115 represents a more significant level.
- Spot 1.3394
- GBPUSD reached a 1-year high earlier, gaining 1.5% to 1.3406, after the BOE signalled that a rate hike is expected to be its next policy move.
- The next key resistance lies around the region of 1.3450 – 1.3500, and is expected to be tested soon. Beyond that, the subsequent resistance target lies at 1.4000 – a level not seen since last year’s June referendum.