September 29, 2016

Issue #175/2016

Daily Observations:

Oil surged the most since April as OPEC agreed to a preliminary deal that will trim output for the first time in 8 years. The deal also helped buoy risk sentiment, with the MSCI Asia Pacific Index rallying earlier today and poised for its best quarter in more than 4 years. Treasuries fell amid concerns higher energy prices could stoke inflation.

US:

  • Fed Chair Yellen said in her testimony to Congress that most members of the FOMC expect a rate increase this year. Furthermore, no change to the current 2% inflation-objective is being considered and that solid job growth is expected to continue. She added that a fraud-based review of major banks has been initiated, after noting that there has been a “disturbing pattern” of compliance issues.
  • Cleveland Fed President Loretta Mester, who was one of three officials to dissent in favor of a rate hike in the last meeting, said the FOMC’s next meeting next month is “a live meeting” to her.
  • The Senate overrode President Obama’s veto on the 9/11 lawsuit bill, which gives victims the right to sue foreign governments involved in terrorist attacks, by an overwhelming 97-1 vote. The result could prompt Saudi Arabia, whose government can now be potentially sued, to delay its first international bond out of concern investors may balk over the issue.
  • Durable goods orders last month stagnated from a month ago, but exceeded expectations of a 1.5% decline.
  • The S&P 500 Index rose 0.5% to close above its 50-day moving average for the first time in almost a week; unsurprisingly, energy producers led gainers.
  • Overnight moves in the US dollar were limited, with most FX movers being oil-related currencies; the Bloomberg Dollar Spot Index was almost unchanged earlier today.
  • The benchmark 10yr yield rose 2bps to 1.57%, erasing an earlier decline to as low as 1.54% following OPEC’s decision to curb production.

Japan:

  • Retail sales in August slid 1.1% month-on-month and 2.1% year-on-year, worse than median estimates of -0.6% and -1.7% respectively.

Singapore:

  • Economic growth will be at the lower end of the government’s forecast of 1%-2% this year, Deputy Prime Minister Tharman Shanmugaratnam said.

Precious Metals:

  • Spot gold fell 0.6% to as low as $1,318.06/Oz last night, before OPEC’s decision to curb output which helped drive most commodities higher saw the precious metal erase earlier declines.
  • Silver was helped higher as well, rebounding from a one-week low to gain 1.3% to $19.3962/Oz.

Oil:

  • OPEC agreed to a preliminary deal that will cut production to 32.5 million to 33 million barrels a day for the first time since 2008. The lower end of the production target equates to a nearly 750,000 bpd drop from what OPEC said it pumped in August.
  • Not all OPEC countries will be cutting output though as Iran won’t have to freeze production, according to the country’s oil minister.
  • Many details remain to be worked out as the group won’t decide on targets for each country until its next meeting on 30th Nov in Vienna.
  • Crude oil for November delivery surged 5.3% to $47.05/bbl, the highest close since Sep 8th.
  • An EIA report showed a fourth consecutive drop in crude stockpiles and helped fuel gains in oil prices.

 

USDSGD:

  • Spot 1.3613
  • USDSGD was little changed and maintained above the 1.3600 handle.
  • The currency pair has seen little action this week, trading within a tight range of 1.3579 – 1.3626.

 

AUDUSD:

  • Spot 0.7693
  • AUDUSD resumed its recent upward trajectory, gaining 0.6% to a two-week high of 0.7710 earlier today, buoyed by risk-on sentiment stemming from last night’s OPEC deal.

 

USDCAD:

  • Spot 1.3069
  • The Canadian dollar surged 1.3% against the greenback; USDCAD slid to one-week low of 1.3048.
  • The 1.3000 support is likely to be tested soon.

 

USDCNH:

  • Spot 6.6814
  • The PBOC weakened its reference rate by 0.03% to 6.6700 against the dollar
  • USDCNH was 0.1% lower around the 6.6800 handle.
  • Volatility of the yuan is at a 3-week low, ahead of China National Day holidays next week.

 

USDJPY:

  • Spot 101.34
  • USDJPY rose 0.7% to 101.41, as OPEC’s agreement overnight helped boost risk sentiment earlier today.
  • The downward trend for USDJPY remains intact though; a break above the 103 level could potentially signal a reversal.

 

GBPUSD:

  • Spot 1.3027
  • GBPUSD maintained above the 1.3000 handle despite paring back earlier gains of 0.3%. Immediate-term resistance should come in around the one-week high of 1.3121.
  • The currency pair looks headed for further sideways movement until more details regarding Brexit emerge.

 

© Jachin Capital Pte Ltd

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