September 5, 2016

Issue #158/2016

Daily Observations:

Asian stocks rallied the most in eight weeks and higher-yielding currencies led gains against the dollar, as last Friday’s weaker-than-expected nonfarm payrolls report kept a lid on speculation that the Fed will hike rates later this month.

US:

  • August nonfarm payrolls rose 151,000, less than the 180,000 anticipated, although July’s figure was revised higher by 20,000 to 275,000.
  • The unemployment rate remained steady at 4.9%, a little higher than the forecasted 4.8%. Wage growth disappointed as well, as average hourly earnings rose 0.1% month-on-month and 2.4% year-on-year, slower than in July and missing consensus estimates of 0.2% and 2.5% respectively.
  • Factory orders in July slipped rose 1.9%, rebounding from the 1.8% drop in June. Durable goods orders maintained its 4.4% increase from the previous month.
  • US Services and Composite PMIs came in at 51.0 and 51.5 respectively.
  • Fed official Jeffrey Lacker called Friday’s jobs report “reasonably strong” and warned against waiting too long to tighten borrowing costs.
  • Traders are pricing in a 32% chance of a rate hike at its September meeting, down from 34% before Friday’s jobs report, though the probability slipped as low as 20% earlier in the session. The first month with better-than-even odds of a rate hike is December.
  • Goldman Sachs says a September hike now looks likelier, while Bill Gross puts the chance near 100%.
  • The US dollar weakened initially on Friday but soon reversed and pared losses. The Bloomberg Dollar Spot Index, which tracks the greenback across 10 major peers, ended the session 0.1% higher. The gauge, however is markedly lower this morning, declining by as much as 0.2%.
  • The benchmark 10yr yields advanced 3bps to 1.6%, buoyed by around $125 billion of expected investment grade bonds issuance this month.
  • The S&P 500 Index rose 0.4%, rebounding after 3 days of declines; utilities, energy, raw-materials and consumer-staples shares were the strongest main industries.

Germany:

  • Chancellor Merkel’s party suffered its first defeat by anti-immigration populists in a state election over the weekend; the state Federal elections are about a year away.

Canada:

  • July trade deficit narrowed to C$2.5 billion from C$4.0 billion in June, and more than the C$3.3 billion deficit originally forecasted.

Japan:

  • Both the Nikkei services and composite PMIs fell into contractionary territory, with the former dropping from 50.4 to 49.6, and the latter declining to 49.8 from 50.1.
  • In a speech earlier today, BOJ Governor Kuroda said there is “ample room for further monetary easing”, although he stopped short in giving specifics. He also added that there won’t be any reduction in policy accommodation in the next BOJ meeting.

Australia:

  • Inventories in the second quarter this year rose 0.3% from the first quarter, matching estimates; its prior figure, however, was revised downwards to -0.4% from 0.4%.
  • Melbourne Institute’s measure of prices rose 0.2% month-on-month and 1.2% year-on-year, reflecting a faster pace of rising prices in recent months.
  • The RBA is expected to hold rates tomorrow at Governor Glenn Stevens’ final meeting tomorrow.

China:

  • Caixin’s measure of services PMI in August rose to 52.1 from 51.7; however composite PMI fell to 51.8 from 51.9.

Singapore:

  • Singapore’s PMI in August rose to 49.8 from 49.3, beating forecasts of 49.4. The electronic component of Singapore’s PMI rose to 50.2 from 49.7.

Precious Metals:

  • Spot gold rose 1.4% on Friday to $1,325.21/Oz following the poorer-than-expected jobs report, although it still remains below the immediate-term resistance of $1,330/Oz/.
  • Silver for immediate delivery jumped 4.1% on Friday to $19.4475/Oz.

Oil:

  • Crude oil for October delivery retreated earlier today, falling 0.9% back towards the $44/bbl handle, following Friday’s 3.0% rally.
  • Vladimir Putin said he’d like Russia and OPEC to reach an output freeze, apart from Iran who should be allowed to raise production until pre-sanction levels.

 

USDSGD:

  • Spot 1.3587
  • USDSGD dipped 0.2% lower to 1.3572 earlier today. The Singapore dollar weakened by as much as 0.9% on Friday to 1.3513 following the release of last month’s US nonfarm payrolls report.

 

AUDUSD:

  • Spot 0.7595
  • AUDUSD added 0.4% to climb to the 0.7600 resistance level this morning, extending upon Friday’s 0.4% rise.
  • Traders are pricing in a 40% chance of further easing by year’s end as they wait to see if the Fed hikes in September, which if they do, would negatively impact the Aussie dollar and remove pressure on incoming Governor Philip Lowe.

 

USDCAD:

  • Spot 1.2966
  • The Canadian dollar rallied following disappointing US nonfarm payrolls data coupled with the possibility of an output freeze in crude oil after Putin’s comments.
  • USDCAD declined 0.9% on Friday, and a further 0.3% earlier today to 1.2961.

 

USDCNH:

  • Spot 6.6897
  • The PBOC weakened its fixing by 0.2% to 6.6873 against the dollar.
  • USDCNH declined 0.2% to 6.6885, after reaching the 6.7000 level earlier this morning.

 

USDJPY:

  • Spot 103.65
  • USDJPY declined 0.4% to 103.53 as continued broad US dollar weakness offset dovish comments made by Kuroda earlier today.
  • The currency pair looks set to snap an eight-day winning streak.

 

GBPUSD:

  • Spot 1.3324
  • GBPUSD climbed 0.3% to 1.3324 earlier today; sterling had initially strengthened to the 1.3350 resistance level on Friday before paring losses to close below 1.3300 for the week.
© Jachin Capital Pte Ltd

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