Spot values at a glance:
Most Asian stocks were higher earlier today, after US equities rose as investors weighed a US deal that ensures the funding of its government through mid-December against persistent geopolitical tensions. Safe haven assets such as the yen and gold declined. Fed Vice-Chair Stanley Fischer is set to resign in October. The Bank of Canada raised rates for the second time since July.
- The US is circulating a draft resolution at the United Nations that would bar crude oil shipments to North Korea, ban the nation’s exports of textiles and prohibit employment of its guest workers by other countries, according to a diplomat at the world body.
- The proposal, which also calls for freezing the assets of North Korean leader Kim Jong Un, has been circulated to the 15 members of the Security Council, according to the diplomat. The US has said it wants the council to take up tougher sanctions at a meeting Sept. 11.
- Japan should discuss whether to lift its ban and allow the US to place atomic weapons on its territory following North Korea’s sixth and most powerful nuclear test, former Defense Minister Shigeru Ishiba said Wednesday.
- Four launchers for a US missile shield arrived at a military base in South Korea on Thursday, as Prime Minister Lee Nak-yon said at a conference in that North Korea may launch its next missile on Saturday – the anniversary of its founding, adding there isn’t much time until the regime becomes a fully nuclear-armed state.
- President Donald Trump struck a deal with Democrats to add a 3-month extension of the US debt limit to a bill providing relief for victims of Hurricane Harvey. Republican leaders pushed for a longer extension; Senate Majority Leader Mitch McConnell, however, said he would support the measure. The Treasury bill market suggests that debt ceiling drama hasn’t disappeared, it’s merely been delayed until December.
- While rates on Treasury bills maturing around the previous deadline have plunged, they’re surging on securities coming due around the Dec. 15 date that Democratic leaders said they’ve agreed to with the administration. According to Bloomberg News, suspending the debt limit for 3 months will still likely continue to constrain Treasury’s borrowing through the rest of the year, at a time when it expects to issue $501 billion in net marketable debt with an end-December cash balance of $360 billion.
- The benchmark 10yr Treasury yield rebounded 4bps to 2.10% in New York last night.
- Fed Vice-Chair Stanley Fischer is poised to leave the central bank in mid-October. The US dollar dipped after this news crossed the wires, as Fischer has shown acute concern for financial stability and is considered to be one of the more hawkish members of the committee.
- The Bloomberg Dollar Spot Index, which gauges the greenback against 10 major peers, closed at its lowest level 31 months. The Dollar Index was relatively unchanged after testing its key 92 support level.
- A Bloomberg View news piece reported that Fischer’s resign could signal more pain for dollar bulls. Fischer had spent a lot of time defending traditional economic models that suggest inflation should accelerate as the unemployment rate drops, which is why the Fed has had a hawkish bias of late. But without the likes of Fischer and Chair Janet Yellen, whose term ends in February, the Fed is likely to lean more dovish, the report added citing FTN Financial economist Chris Low.
- The Markit services PMI for August slipped to 56.0, from 56.9 in July, missing out on the consensus forecast of 56.9. Composite PMI last month fell as well, from 56.0 to 55.3.
- The ISM non-manufacturing composite advanced in August to 55.3, from 53.9 in the previous month. It was however lower than the median estimate of 55.6.
- US stocks pushed higher, cheered on by a deal struck between lawmakers and President Trump to extend the US debt limit. All 3 major indices gained 0.3%.
- The Bank of Canada raised its benchmark rate by 25bps to 1.0% yesterday, its second increase since July. Policy makers cited risks going forward, including continued excess capacity, subdued wage and price pressures, geopolitics and the higher Canadian dollar, along with concern about the impact of rising interest rates on indebted households.
- “Future monetary policy decisions are not predetermined and will be guided by incoming economic data and financial market developments as they inform the outlook for inflation,” the BOC said in a statement.
- Governor Stephen Poloz is trying to strike a balance between bringing interest rates back to more normal levels amid the strongest growth spurt in more than a decade, without harming an economy that is only now beginning to fully recover from an almost decade-long downturn. Markets, shrugging off some of the more dovish language, sent the Canadian dollar to the highest level in more than 2 years as it interpreted the statement as confirmation the central bank is firmly on a rate hike path.
- The ECB is set to announce its monetary policy decision later today. According to the economists at Bloomberg Intelligence, ECB President Mario Draghi faces a delicate balancing act: how to react to a rapidly recovering economy with no signs of inflation. Based on their assessment, Draghi is probably counting on faster price increases to eventually materialize, but uncertainty about when that will actually happen will cause him to move cautiously on removing stimulus and ending the ECB’s bond purchase program.
- Retail sales in July missed estimates, registering no change in July from a month ago instead of rising 0.2% as predicted. This follows a rise of 0.2% and 0.6% in June and May respectively, and clearly indicates a slowing down of the retail sector.
- Trade surplus in July narrowed to A$460 million as opposed to the expected rise to A$856 million.
- According to a Bloomberg report Wednesday, Singapore is set to face a double whammy of a shrinking workforce and slower progress than Asian neighbors in getting more people into the labor market over the next 20 years. Citing a new study from Oxford Economics, the report added that Singapore’s labor supply growth, after accounting for changes to the participation rate, will shrink by 1.7 percentage points in the 10 years through 2026 and by 2.5 percentage points in the decade after that. That’s the worst of a dozen economies in the study.
- Spot gold erased its previous session’s gain, declining by as much as 0.5% to $1,331.75/Oz last night following renewed risk-on sentiment in markets overnight.
- Gold is struggling to break above the $1,340/Oz resistance – a post US presidential election-high. The longer-term momentum continues to remain on the upside though, having broken the important psychological resistance of $1,300/Oz last week. The precious metal should be supported above the $1,325/Oz as long as geopolitical tensions within the Korean peninsula remain heightened. To the upside, beyond $1,340/Oz, the next resistance target comes in at $1,375/Oz.
- Silver for immediate delivery declined as well, falling 0.8% to $17.8172/Oz after falling to break above the $18/Oz mark.
- Crude oil futures gained held gains near a 4-week high, after extending its rally overnight by another 1.0% to $49.16/bbl as US refiners return from shut downs caused by Hurricane Harvey and boost crude processing.
- Industry data showed crude inventories rose by 2.79 million barrels last week. If government figures due later today also report an increase, it would be the first since end-June.
- Goldman Sachs Group Inc. forecasts half of the refining capacity which was lost due to Harvey will be back online by Thursday and may prove positive for the oil markets in a few months.
- Spot 1.3485
- USDSGD fell below the key 1.3500 mark, sinking 0.3% to 1.3477 earlier today on the back of continued US dollar weakness.
- The major support remains around the 1.3350 – 1.3400 region.
- Spot 0.7992
- AUDUSD pared an overnight gain of as much as 0.6% to retreat back below the 0.8000 handle today following disappointing retail sales and trade balance figures.
- Spot 1.2234
- USDCAD was lower by as much as 2.0% to 1.2146, its lowest level in more than 2 years, following a 25bps rate hike by the BOC last night.
- Having broken below the previous important 1.2400 handle, the currency pair looks set to test the next support of 1.1920 over the coming months.
- Spot 6.5356
- The PBOC strengthened its reference rate for the ninth consecutive day – its longest run since 2011, by 0.06% to 6.5269 per US dollar earlier today.
- USDCNH continues to fluctuate near 16-month lows.
- OCBC economist Tommy Xie said earlier this week 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 109.12
- USDJPY reversed some of its previous day’s decline, and rose by as much as 0.5% to 109.40 last night. The currency pair has since pared its overnight rise, falling back to the 109 handle in Asian trade today.
- A break below the 108 support could lead to a rapid fall back to the 105 handle.
- To the upside, 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 1.3046
- GBPUSD was little changed on the day, and has been holding above the 1.3000 level for most of the past 2 days.
- 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 earlier this week after its summer recess.
- The 2-month low of 1.2775 should provide near term support.