September 30, 2016

Daily Observations:

Financial shares were the biggest drag in Asia after Deutsche Bank slid to a record low during its US trading hours. Safe haven demand saw investors pile into the US dollar, sovereign bonds and gold. Oil neared a one-month high.

US:

  • According to a Bloomberg report, 10 hedge funds that do business with Deutsche Bank have moved to reduce their financial exposure, amid mounting concerns regarding the German lender’s ability to withstand pending legal penalties. The bank’s ADRs tumbled to a record low, sparking a slump in banking equities.
  • CNBC reported some of Deutsche Bank’s counterparties are changing credit agreements while some clients are demanding “triparty” credit agreements.
  • Second quarter GDP in the US grew 1.4% quarter-on-quarter, outpacing previous quarter’s expansion of 1.1% and beating economists’ expectations of 1.3%.
  • Core PCE, the Fed’s preferred gauge of inflation, paced its advance from the previous quarter and matched estimates, rising 1.8% in 2Q.
  • Wholesale inventories in August declined 0.1% month-on-month, missing estimates of 0.0%.
  • Philadelphia’s Fed President Patrick Harker said he’s inclined to normalize sooner later than later as the last night’s GDP numbers show the economy continues to grow as expected.
  • Janet Yellen commented that there could be benefits to the Fed buying equities or corporate bonds, but there would also likely be costs that have to be considered and is not “something we need now”. She did say, however, that it “could be useful” to intervene directly in assets where prices have more direct links to purchasing decisions if the Fed finds that it has reached the limits of purchasing safe assets.
  • The S&P 500 Index fell 0.9% with bank shares leading losses; US-traded shares of Deutsche Bank slid 6.7% to a record low.
  • The benchmark 10yr Treasury yield slid 1bp to 1.56%, reflecting investors’ demands for quality assets.
  • The US dollar strengthened; the Bloomberg Dollar Spot Index climbed 0.2% after declining 0.4% over the last three days, as Fed officials continue to reiterate their guidance towards a rate-hike in December.

Japan:

  • Headline CPI fell 0.5% from a year earlier, matching expectations. Core CPI, which discounts the effects of food and energy, rose 0.2% over the same period, in line with economists’ predictions.
  • Industrial production in August rose 1.5% month-on-month, better than the 0.5% expected and reversing upon last month’s 0.4% slide.
  • The jobless rate last month rose to 3.1% from 3.0% prior, but the job-to-applicant ratio remained constant at 1.37.

China:

  • September’s Caixin manufacturing PMI rose 0.1 to 50.1, matching economists’ estimates.
  • A Bloomberg survey showed economists expecting the PBOC to shift to a monetary tightening stance by as early as 2017. With the economy stabilizing for now and home prices in major cities soaring, analysts have dialled back forecasts for additional monetary stimulus and predict a switch to tightening mode sooner rather than later.

Precious Metals:

  • Spot gold rose 0.4% to $1,324.86/Oz earlier today, paring most of its declines yesterday; demand for safe haven assets by investors helped prop gold prices.
  • Silver for immediate delivery remained supported at the $19/Oz handle, and rose 1.0% to an intraday high of $19.2193/Oz.

Oil:

  • Crude oil for November delivery continued its ascent, extending gains by a further 1.7% to $47.83/bbl last night. The resistance at $50/bbl remains to be tested.
  • OPEC’s agreement yesterday marks the end of a two-year pump-at-will policy that was advocated by the Saudis.

 

USDSGD:

  • Spot 1.3658
  • USDSGD advanced 0.3% to 1.3667, as the Singapore dollar fell to its weakest against the greenback since Sep 21st after demand for the USD was boosted overnight following Deutsche Bank concerns.
  • The 1.3700 resistance is the next level to be tested.

 

AUDUSD:

  • Spot 0.7693
  • AUDUSD declined 0.6% to 0.7615, broadly due to overnight strength in the US dollar.
  • Its one-week low lies just above the 0.7600 handle.

 

USDCAD:

  • Spot 1.3153
  • USDCAD pared most of its previous day losses, rising 0.7% to 1.3184 last night.
  • The Canadian dollar could face renewed strength should oil prices continue to rally; the next support lies at the 1.3000 handle.

 

USDCNH:

  • Spot 6.6812
  • The PBOC weakened its reference rate for the third day, by 0.1% to 6.6778 against the dollar.
  • USDCNH pared some of yesterday’s losses, rising 0.1% to 6.6812 earlier today.
  • According to a note to clients, UBS noted that the yuan’s inclusion into SDR next week could provide a modest uplift to yuan asset demand, although short and medium-term impacts are likely to be negligible.

 

USDJPY:

  • Spot 101.44
  • USDJPY pared overnight losses earlier today, with the currency pair receiving strong support around the 101 handle.
  • The downward trend for USDJPY remains intact though; a break above the 103 level could potentially signal a reversal.

 

GBPUSD:

  • Spot 1.2946
  • GBPUSD retreated below the 1.3000 handle, driven by overnight US dollar strength.
  • The currency pair looks headed for further sideways movement until more details regarding Brexit emerge.

 

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