September 2, 2016

Daily Observations:

Moves in financial markets were mostly modest amid the countdown to key nonfarm payrolls data tonight which is seen to provide clues regarding the timing of the next rate hike in the US. Oil pared some losses following a more-than-9% drop over the past two days, while gold rebounded off the key $1,300/Oz support.

US:

  • ISM manufacturing in August dropped to contractionary territory of 49.4, from 55.0 the previous month, missing estimates of 52.0.
  • The Markit US manufacturing PMI fared better at 52.0, but still missed expectations of 52.1.
  • Construction spending in July was stagnant from a month earlier, but missed estimates of a 0.5% increase; spending the previous month was revised higher to 0.9%.
  • Initial jobless claims rose to 263,000 from 261,000, though less than the forecasted 265,000.
  • US nonfarm payrolls are due tonight; Fed Chair Yellen’s recent words suggest jobs gains need to be merely solid, not stunning, for a hike by year’s end.
  • Despite last night’s poor ISM figures, it is worth noting that the Fed raised rates in Dec 2015 even though ISM was in contractionary territory then.
  • The Fed’s Cleveland President Loretta Mester said Thursday there’s a “compelling” case for gradually raising interest rates, as the economy approaches the Fed’s targets on employment and inflation.
  • The dollar weakened overnight as the Bloomberg Spot Dollar Index snapped a 4-day positive streak, receding 0.4%. The gauge is still up almost 2% from its lows last month.
  • The benchmark 10yr Treasury yield fell 1bp to 1.57%. Front-end Treasuries fell more, as 2yr note yields declined 2bp to 0.79%.
  • The S&P 500 Index slipped less than a point to end almost unchanged, reversing an initial drop of 0.6%.

UK:

  • The Markit’s UK PMI manufacturing index rose to 53.3 in August, from 48.3 the previous month, soundly beating the consensus forecast of 49.0.

China:

  • China’s yuan has doubled its share of global currency trading in the 3 years through Apr 2016, according to the latest triennial survey conducted by the Bank for International Settlements. Average daily turnover for the yuan rose to $202 billion from $120 billion in 2014, boosting the ratio of global FX trading to 4% from the previous 2%.
  • PBOC Deputy Governor Yi said China is studying expanding the use of SDR to facilitate SDR-denominated financial products.

Singapore:

  • The MAS has relaxed refinancing rules for some homeowners as the economy cools, making it easier for those struggling with their loans to roll over their mortgages.
  • Households who are refinancing their existing mortgages will be exempted for a 60% cap on their total debt-servicing ratio, even if they had observed it when making the purchase, the MAS said in a statement released yesterday.

Precious Metals:

  • Spot gold rebounded off the $1,300/Oz psychological level last night, rising 0.7% to a high of #1,315.88/Oz.
  • Silver for immediate delivery, too, rebounded, advancing 1.8% to $19.0095/Oz.
  • It is still too early to determine whether last night’s rebounds in precious metals were early signs of a reversal or merely the proverbial dead-cat bounce. The NFP report tonight should shed further light on the future direction on gold and silver.

Oil:

  • Crude oil for October delivery declined 3.5% to $43.16/bbl, capping a 9.3% drop over the past two days.
  • Russian Energy Minister Alexander Novak said he sees no need for an output cap given current price levels.

 

USDSGD:

  • Spot 1.3579
  • USDSGD snapped a 5-day winning streak, declining 0.4% back below the 1.3600 level earlier today.

 

AUDUSD:

  • Spot 0.7554
  • AUDUSD extended yesterday’s rebound, rising a further 0.3% to 0.7559 after reversing an initial drop towards the 0.7500 handle.

 

USDCAD:

  • Spot 1.3092
  • USDCAD declined 0.3% to 1.3083 after earlier reaching its highest point in three weeks.
  • The currency pair failed to breach the 1.3150 mark for the second day in a row. A decline back to the 1.3000 handle is possible.

 

USDCNH:

  • Spot 6.6886
  • The PBOC weakened its fixing by 0.1% to 6.6727 against the dollar.
  • USDCNH declined 0.1% to 6.6828, a one-week low.

 

USDJPY:

  • Spot 103.36
  • USDJPY fell 0.5%, reversing gains after rising to the 104 handle last night and looks set to snap its run of seven consecutive sessions of gains.

 

GBPUSD:

  • Spot 1.3281
  • The pound rallied 0.5% to 1.3318 last night, following much better-than-expected PMI data in the UK.
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