Spot values at a glance:
Most Asian equities fell earlier today, after North Korea tested a nuclear bomb on Sunday. Investors turned to safe haven assets, as gold, the yen and Treasury futures all rose earlier in the session. US President Trump has threatened to increase economic sanctions and halt trade with any nation doing business with Kim Jong Un’s regime.
- North Korea claimed on Sunday it successfully detonated a hydrogen bomb that can fit onto an intercontinental ballistic missile, advancing its quest to be able to hit the US with a nuclear weapon. Earlier in the day it said it now had a bomb with a maximum force topping 100 kilotons – more than 6 times the magnitude of what the US detonated over Hiroshima.
- In the wake of this revelation, US President Donald Trump threatened more sanctions and to cut off trading ties with any country doing business with the North Korea. He tweeted criticism of China’s commercial ties with Kim Jong Un’s regime and South Korea’s “talk of appeasement”.
- The test was also condemned by world powers including Russia and France; an emergency meeting of the UN Security Council on Monday has been requested.
- The US economy added fewer employees than expected in August, the jobless rate rose and wages climbed less than forecast, in a break from otherwise solid progress in the labor market. Nonfarm payrolls in August rose 156,000, less than the 189,000 gain in July and worse than the 180,000 rise predicted by analysts. The private service-providing jobs that have driven hiring for most of the year showed a cooling in August, with gains of 95,000 at a 5-month low. By comparison, manufacturing and construction were robust.
- Average hourly earnings last month gained 0.1% month-on-month and 2.5% year-on-year, below their respective estimates of 0.2% and 2.6%. The jobless rate ticked higher to 4.4%, from 4.3% in July.
- The ISM manufacturing gauge gained to 58.8 in August, from 56.3 in the prior month, bettering the median estimate of 52.5. Much of the latest gain may be attributed to a weaker US dollar. The Markit Us manufacturing PMI advanced as well, to 52.8 from 52.5 in July.
- Most analysts interviewed by Bloomberg indicate that August’s disappointing payrolls won’t deter the Fed from announcing its balance-sheet reduction plan in the coming weeks. Odds of a Fed rate hike by year-end were little changed at about 30% last Friday, according to Bloomberg pricing data.
- The benchmark 10yr Treasury yield briefly breached below the 2.10% mark in the wake of the lacklustre job report, but quickly reversed course to close 5bps higher at 2.17% after a pair of better-than-expected US manufacturing purchasing managers’ indexes affirmed the strength on the goods side in the US.
- The US dollar weakened over the weekend following increased geopolitical concerns involving the US and North Korea. The Bloomberg Dollar Spot Index retreated 0.2% earlier this morning, while the Dollar Index erased Friday’s gain by falling 0.2% to 92.606 earlier today.
- US equities ended the first trading day of September on a higher note, although heightened geopolitical concerns over the weekend have pushed index futures lower this morning.
- ECB policy makers may not be ready to finalize their decision on next year’s bond-purchase plan until just a couple of weeks before the current program expires, according to euro-area officials familiar with the matter. According to a Bloomberg news report, while the Governing Council is set to hold its first formal talks next week on its stimulus path for 2018, there is no appetite to rush into a decision then and the complexity of the topic means the full details of the plan might not be settled at the Oct. 26 policy meeting, the people said.
- Business in Australia is regaining its strut and has begun investing, but debt-laden households are struggling with stagnant incomes and substantial hikes in power prices. Juggling the 2 is the RBA, which has kept its benchmark interest rate unchanged at a record-low 1.5% for the past year, and has little option but to do so again tomorrow, Bloomberg News reported.
- Policy makers are blowing on the embers of the consumer in the hope of some sparks, though in truth it’s the strengthening business sector that needs to boost wages. As a result, traders are pricing in virtually no chance of a rate increase this year, but see about a 50% percent chance of a 25bps hike in June 2018.
- Spot gold gapped higher by as much as 0.9% to $1,336.79/Oz earlier today, before paring back some of its advance. The precious metal has been buoyed by safe haven buying in the wake of heightened tensions brewing in the Korean peninsula.
- Having broken above its key $1,300/Oz level last week, thus confirming its breakout of its multiyear downtrend, the bias has now shifted strongly to the upside for the yellow metal with the next resistance target coming in at $1,375/Oz.
- Silver for immediate delivery jumped as well, gaining 1.0% to $17.9090/Oz – a 4-month high.
- Crude oil futures rose 0.5% to $47.41/bbl earlier, after it was reported that some US Gulf Coast refineries are planning to restart operations following shut downs forced by flooding from Hurricane Harvey. The government has also approved the release of 4.5 million barrels from the strategic petroleum reserve, moves which tempered the weekly rise in gasoline prices Friday.
- Russian deputy Prime Minister Arkady Dvorkovich told Bloomberg TV “the most likely outcome is that the deal [between OPEC and other major oil-producing nations] will be extended,” while adding that it’s too early to make a decision.
- Spot 1.3569
- USDSGD was little changed today, after falling 0.2% to 1.3570 on Friday.
- The currency pair is likely to meet some resistance at around the 1.3600 handle. However the major resistance level comes in at 1.3700. A breakout above the latter could signal a reversal in currency pair’s downtrend channel, formed since the start of the year.
- The major support remains around the 1.3350 region.
- Spot 0.7967
- AUDUSD erased most of its earlier session gap lower and remains little changed on the day.
- The pair continues to trade between its 0.7900- 0.8000 range.
- Spot 1.2389
- USDCAD sank 2.0% to 1.2394 on Friday, closing at its lowest since June 2015, following better-than-expected 2Q GDP which boosted bets the central bank will increase rates for the second time this year, possibly as early as this week.
- A convincing break below the 1.2400 handle may lead to a retest of the psychological support at 1.2000.
- Spot 6.5483
- The PBOC strengthened its reference rate by 0.37% to 6.5668 per US dollar earlier today.
- USDCNH fell 0.2% to 6.5471, its lowest level in almost 15-months even in spite of North Korea’s nuclear test over the weekend. Analysts are predicting the yuan won’t be affected by increased geopolitical tensions in the region, with investors viewing the yuan as a safe-haven currency.
- Spot 109.81
- USDJPY fell by as much as 0.9% to 109.23, although it has since pared most of it and is currently lower by 0.3% on the day at around the 110 handle.
- The 1-month resistance level around 111 is likely to cap future gains, but on a longer term basis, 115 represents a more significant level.
- The key support remains at the 108 handle, last tested in April. The pair has largely ranged between 109 and 115 for most part of the last 5 months. A breakout in either direction could lead to a sustained move that could last until the end of the year.
- Spot 1.2954
- GBPUSD was largely unchanged from its close on Friday of 1.2951.
- Sterling concluded a second weekly advance against the dollar Friday. Still, that wasn’t enough to prevent its steepest monthly drop versus the USD since October last month as progress on Brexit talks between the UK and the EU ground to a near standstill, ending in acrimony on Aug. 31. With Parliament returning from its summer recess this week, PM Theresa May will have to bring the members of her Conservative cabinet onto the same page in order to prevent further declines in the currency.
- The 2-month low of 1.2775 looks to provide near term support.