Spot values at a glance:
Asian stocks declined as investors shunned riskier assets amid escalating geopolitical tensions emanating from the Korean peninsula. Safe haven assets such as the yen and gold held near year-to-date highs, while US Treasury yields remained at their lowest since the presidential election last November.
- North Korea’s powerful neighbors Russia pushed back against calls for a fresh round of sanctions following its nuclear test. Russian President Vladimir Putin called sanctions “useless and ineffective”, saying other governments would be better served by offering security guarantees to North Korea.
- China has said that Trump’s threat to shut off trade with any country doing business with North Korea is “unacceptable”, and it’s seen as unlikely the world’s second-largest economy would agree to cut off oil exports to its neighbor. As such, some of China’s larger firms, especially financial institutions and energy companies, may now be at risk of sanctions in a bid to curb North Korea’s nuclear ambitions
- Factory orders for July fell 3.3%, in line with expectations, contracting from June’s 3.2% rise. Durable goods orders fared worse, contracting 6.8%, more than the 2.9% drop predicted.
- Federal Reserve Governor Lael Brainard said the US central bank needs to pay careful attention to underlying inflation before raising interest rates again, as longer-run price pressure trends appear to be lower. She reiterated her view that if inflation continues to fall short of the Fed’s 2% target, “it would be prudent to raise the federal funds rate more gradually”.
- Minneapolis Fed President Neel Kashkari, one of the more dovish members on the FOMC, said that Fed rate hikes may be “doing real harm” to the U.S. economy, which would help explain why inflation is low and job growth has slowed.
- Dovish comments by the 2 Fed officials drove 10yr Treasury yields to fresh lows for the year. The 10yr Treasury yield sank 11bps to 2.06%, reaching levels not seen since last November.
- The implied odds of another interest-rate increase by the Fed this year has fallen below 30 percent, according to Bloomberg pricing data.
- The US dollar continued its decline; the Bloomberg Spot Dollar Index, which tracks the greenback against 10 major peers, fell 0.3% to its lowest close in 31 months. The DXY Index slipped 0.4% to 92.252; the key support lies at the 92 handle.
- The US dollar seems to have lost its position as a haven currency, as compared to the Japanese yen, Swiss franc and gold, as lower bond yields tend to lessen the appeal of the greenback relative to other currencies, especially those in emerging markets. It’s notable that the greenback even fell against the likes of Brazil’s real, Chile’s peso and Israel’s shekel on a day when investors couldn’t get enough of assets considered havens.
- US equities resumed trading after a long weekend; the S&P 500 Index fell 0.8%, led by weakness in financial and tech shares. The Dow Jones Industrial Average and Nasdaq Composite declined 1.1% and 0.9% respectively.
- The Bank of Canada is due to release its monetary policy decision later today. The Canadian economy has turned out to be much stronger than expected in recent times, giving policy makers the scope to bring back rates higher, according to Bloomberg News. The only debate is whether Governor Stephen Poloz will move at tonight’s meeting or wait until October, and whether current projections for as many as 3 more rate increases by the end of 2018 are too conservative.
- According to Bloomberg pricing data, traders are pricing in a 44% chance of a rate hike tonight.
- When ECB governors meet this Thursday, President Mario Draghi is set to acknowledge that the strong currency will be an issue ahead of talks on how and when to start winding down the extraordinary stimulus in 2018, according to a Bloomberg survey. But the new forecasts he will unveil on inflation and growth are unlikely to contain dramatic revisions.
- The Markit UK services PMI for August slipped to 53.8, lower than the 53.5 consensus estimated. Composite PMI inched lower to 54.0, in line with expectations.
- Japan’s companies cut bonus payments in July, leading to a surprise drop in total pay for workers. While this was the first fall in 14 months, previous gains have been weak and well below the level needed to generate stronger inflation.
- Labor cash earnings fell 0.3% from a year ago, worse than the 0.5% rise expected. Real cash earnings declined 0.8% year-on-year, missing the 0.0% change forecasted.
- Australia’s 2Q GDP expanded 0.8% from the prior quarter and 1.8% from a year ago, both less than their median estimates of 0.9% and 1.9% respectively. The quarterly growth marked 26 years without a recession and conforms to the RBA’s view of an economy gradually picking up speed over the coming year.
- Household savings ratio was 4.6%, while household spending rose 0.7% quarter-on-quarter.
- The RBA yesterday held its cash target rate steady at 1.50%, as expected. Governor Philip Lowe said in a statement that “recent data have been consistent with the bank’s expectation that growth in the Australian economy will gradually pick up over the coming year”. He further added that there’ve been signs the housing market is easing, especially in Sydney. He also said that wages growth remains low and is likely to continue for a while.
- The PMI in August gained to 51.8, from 51.0 in July, surpassing the consensus forecast of 51.2. The electronics sector index advanced too, from 52.2 to 53.2.
- The Nikkei Singapore PMI came in at 53.2 in August, up from 51.3 in July.
- Spot gold pared its advance to a fresh 11-month high – rising by as much as 0.9% to $1,344.44/Oz last night, slipping back below the $1,340/Oz handle earlier today. The precious metal has seen increased demand due to heightened geopolitical risks.
- 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 pared overnight gains earlier today as well. The metal briefly gained past the $18/Oz handle, before slipping back towards Tuesday’s close of $17.8740/Oz. Silver’s next major resistance comes in at $18.6530/Oz.
- Crude oil futures gained held gains near its 3-week high, following last night’s 2.9% rally to $48.66/bbl as key refineries and pipelines restarted operations following shutdowns forced by flooding from Hurricane Harvey.
- US crude stockpiles likely expanded by 2.5 million barrels last week, while gasoline inventories dropped by 5 million, according to a survey before the release of official government data on Thursday. Russian and OPEC may extend a deal to cap oil output past the first quarter of next year, with changes to deal terms possibly to be made if the market remains “unbalanced”, Russian Energy Minister Alexander Novak told reporters.
- Spot 1.3533
- USDSGD fell by as much as 0.3% to 1.3516 overnight before erasing some of its decline during Asian trade today.
- 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 0.7992
- AUDUSD retreated back below its 0.8000 handle following the slightly worse-than-expected 2Q GDP data earlier today. The pair is still 0.2% higher on the day at 0.7992.
- Spot 1.2389
- USDCAD fell by as much as 0.4% to a fresh 26-month low of 1.2336 last night, before recovering back to the 1.2400 handle ahead of tonight’s Bank of Canada monetary policy decision.
- A convincing break below the 1.2400 handle may lead to a retest of the psychological support at 1.2000.
- Spot 6.5459
- The PBOC strengthened its reference rate for the eighth consecutive day, by 0.09% to 6.5311 per US dollar earlier today.
- USDCNH pared its previous session’s rebound, falling by as much as 0.4% to 6.5318 earlier this morning.
- OCBC economist Tommy Xie said the yuan may be supported not only by a widening yield differential with the US but also by safe-haven inflows as China is the world’s second-largest net creditor.
- Spot 108.63
- USDJPY retreated 0.7% to 108.50 earlier today, and is likely to test its year-to-date low of 108.13 soon. A break below 108 could lead to a rapid fall back to the 105 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.
- Spot 1.3036
- GBPUSD rose 0.7% to 1.3044, a 3-week high, on the back of a weaker US dollar overnight.
- The pound has, for most part of last month, been hampered by a lack of progress in Brexit negotiations between the UK and the EU. The third round ended in stalemate last week, spurring doubts that the two sides would be ready to discuss a trade deal any time soon. Markets will keep an eye on politics with the UK House of Commons reconvening yesterday after its summer recess.
- The 2-month low of 1.2775 should provide near term support.