September 21, 2016

Daily Observations:

Asian stocks were mixed, while the yen hit a one-week high ahead of much-anticipated central bank decisions in Japan and the US. The dollar and gold was little changed, while oil jumped above $45/bbl.

US:

  • Housing starts last month slid 5.8% from a month earlier, more than the 1.7% initially projected while July’s figure was revised lower as well.
  • Market participants are eagerly awaiting tonight’s Fed “dot plot” projections, which will probably show policy maker see one 25bps rate increase by year-end.
  • The benchmark 10yr Treasury yield fell 2bps to 1.69%, trimming September’s advance to 11bps.
  • Overnight FX markets moved in fairly tight ranges as currency traders wait for the BOJ and Fed decisions later today. The greenback maintained near 7-week highs; the Bloomberg Dollar Spot Index closed 0.1% higher but pared back gains earlier this morning.
  • For many, the biggest unknown this week is whether the BOJ would be willing to increase the record scale of its asset purchases or cut rates further into negative territory. By doing neither in recent meetings, the central bank has fuelled bets that its tools are losing their potency. Most agree that the biggest threat to the yen would be signs of hawkishness from Fed Chair Yellen later today.
  • The S&P 500 Index pared gains of as much as 0.6% to close almost unchanged. The benchmark is trading at 18.3 times estimated earnings, its most expensive level since 2002.

Canada:

  • Bank of Canada Governor Poloz has urged policy makers to press ahead with efforts to remove trade restrictions and spend more on infrastructure in order to boost sluggish long-term growth.
  • Poloz added that an aging population and other factors have driven the country’s “potential growth rate” to about 1.5%, adding downward pressures on interest rates.

Germany:

  • August PPI fell 0.1% month-on-month and 1.6% year-on-year; economists predicted 0.0% and -1.6% respectively. PPI has contracted every month since July 2013.

Japan:

  • The BOJ’s policy rate decision will be due out shortly. According to economists surveyed by Bloomberg, 14 out of 43 expect a further rate cut into negative territory, while at least 9 saw an increase in monetary base target and at least 7 forecasted an increase in JGB purchases.
  • More information will be available once Governor Kuroda speaks to the press scheduled for 2:30pm SGT.
  • 30% of investors expect the BOJ to steepen the yield curve at this week’s meeting, according to a Nomura poll.
  • Exports in August slumped 9.6% from a year earlier, more than the 4.7% drop expected. Imports declined 17.3% year-on-year, exceeding the 16.6% fall predicted.

China:

  • Premier Li Keqiang said in New York that he was confident that ties with the US would remain positive regardless of the outcome of the US presidential elections.
  • Clinton has vowed to “stand up” to China should it break trade rules, while Trump has threatened to slap a 45% tariffs on Chinese goods.

Precious Metals:

  • Spot gold continued to be supported above the $1,300/Oz level, gaining 0.2% to $1,316.50 earlier today.
  • Silver for immediate delivery was largely unchanged, as the precious metal continued to range between $19.00/Oz and $19.50/Oz.

Oil:

  • Crude oil for October delivery jumped 2.5% to $45.14/bbl this morning ahead of a government update on US stockpile levels which showed inventories fell by 7.5 million barrels last week.
  • Elsewhere, Algerian Energy Minister Bouterfa said OPEC is seeking ways with other producers to cut crude supplies by 1 million barrels a day.

 

USDSGD:

  • Spot 1.3617
  • USDSGD fell 0.1% to 1.3609 earlier today. The currency pair has been well-supported above the 1.3600 level over the past week.

 

AUDUSD:

  • Spot 0.7558
  • AUDUSD rose 0.2% to 0.7563 and looks poised to extend its winning streak to 5 days.
  • The Australian dollar has found renewed strength following yesterday’s RBA minutes which gave no indication that further rate cuts are under consideration.

 

USDCAD:

  • Spot 1.3174
  • USDCAD reversed prior day’s gains, falling 0.4% to an intraday low of 1.3171 today following fresh US government data that showed inventories fell last week.
  • 3253 is the key resistance level; a renewed weakness in oil prices or weak retail and inflation numbers later this week could drive the currency pair above it.

 

USDCNH:

  • Spot 6.6786
  • The PBOC weakened its reference rate by 0.21% to 6.6738 against the dollar.
  • USDCNH fell 0.1% to 6.6781, paring back some of its gains made the previous day.
  • The PBOC has refuted claims that it played a role in boosting CNH Libor to support the currency.

 

USDJPY:

  • Spot 101.63
  • USDJPY fell 0.7% to 101.22 earlier today, ahead of its key BOJ policy decision which should come in around noon time SGT.

 

GBPUSD:

  • Spot 1.2978
  • GBPUSD maintained below the key 1.3000 level, following its 0.7% decline the previous session over renewed concerns over Brexit.

 

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