Spot values at a glance:
The US dollar tumbled to its weakest levels since the start of 2015 as investors brace for potential economic damage to Florida from the historically powerful Hurricane Irma. The euro was near the highest since January 2015 after the ECB stopped short of attempting to jawbone it lower. Asian equities were mixed while gold gained.
- President Donald Trump said it’s not “inevitable” that the US will wind up in a war with North Korea over its continued development of nuclear weapons, but that military action remains an option. He declined to say whether he’d accept a nuclear-armed North Korea that can be successfully deterred from using atomic weapons. A senior administration official later told reporters that the US will not allow North Korea to extort or threaten the world with its nuclear program, and that the administration is not sure the country can be deterred.
- Initial jobless claims for the week ended 2 Sep. rose to 298,000, from 236,000 in the week prior, more than the expected 245,000. This was the largest spike since 2012, although it was mostly attributed to Hurricane Harvey.
- The Fed’s Cleveland President Loretta Mester broadened her argument for sticking to a gradual path of interest-rate increases, urging her colleagues to stay the course despite weak readings on inflation. “The conditions remain in place for inflation to gradually return over the next year or so to our symmetric goal of 2% on a sustained basis,” Mester, one of the more hawkish officials at the US central bank, said in a speech Thursday. She added she’d be “comfortable” raising rates again this year, and made clear that holding off on another increase until Mar. 2018 wouldn’t fit with her idea of “gradual rate hikes.”
- New York Fed chief William Dudley reiterated the need to continue raising interest rates while conceding that the Fed’s inflation model may be in for a rethink soon.
- Hurricane Irma is on a collision course with Miami after wreaking havoc on Puerto Rico and a number of islands in the Caribbean. It’s due to hit the US on Sunday, though it’s difficult to predict its path with precision. Meanwhile, the US Federal Emergency Management Agency is almost out of money amid continued relief efforts related to Hurricane Harvey. According to the National Hurricane Center, 2 more hurricanes – Katia and Jose, are now churning in the Atlantic as this year’s storm season is proving to be an active one.
- Barclays Plc estimates Irma will inflict as much as $130 billion on insurers in a worst-case scenario, making it the most expensive storm in US history. S&P Global Ratings says Irma poses a risk to 13 catastrophe bonds, which are essentially securities designed to protect insurers from payouts for natural disasters by passing on the risk to investors, totaling at least $1.23 billion.
- The ECB’s dovish tone yesterday (more details below) fuelled demand for USD-denominated debt, and sent Treasury yields plummeting. The benchmark 10yr Treasury yield sank 6bps to 2.04% in New York – its lowest close since Nov. 9 last year. Recent lack of inflation, as well as geopolitical uncertainties have also pressured yields.
- The US dollar continues to weaken, with the Bloomberg Dollar Spot Index and the Dollar Index breaking below key support levels of 1150 and 92 respectively. The latter ended 0.7% lower in New York, and retreated a further 0.3% to 91.290 earlier today, its lowest level since Jan. 2015.
- US equities were largely unchanged. The Dow Jones Industrial Average (-0.10%) and the S&P 500 Index (-0.02%) slipped slightly, while the Nasdaq Composite eked out a 0.07% gain. Insurance companies slumped on the back of hurricane concerns, while bank shares were lower as well due to plummeting yields.
- Euro bulls swatted aside concerns by ECB President Mario Draghi over the currency’s strength to take it near a 2-year high against the dollar as they focused on a potential October announcement on the future of the central bank’s stimulus program. Draghi had stated that the exchange rate was a source of uncertainty that requires monitoring, blamed the trimming of inflation forecasts on the euro’s appreciation.
- Despite his dovish comments, investors seem to have concluded that there is little Draghi can do to stop the currency’s path higher as the ECB prepares to scale back its asset-purchase program amid improving economic growth in the euro area.
- China’s export growth slowed as global demand for the country’s products moderated, while imports remained robust as investment at home aided demand. In USD terms, exports in August rose 5.5% year-on-year, slowing from the 7.2% increase in July and less than the 6.0% rise predicted. Imports gained 13.3% over the same period, accelerating from the 11.0% increase in the prior month and better than the 10.0% rise expected.
- Japan’s 2Q GDP rose less than predicted, weighed down by a revision in capital expenditure by companies. GDP rose by an annualized 2.5% quarter-on-quarter, down from the prior reading of 4.0% and less than the estimated 2.9%. On a seasonally adjusted basis, GDP rose 0.6% from the previous quarter, less than the 0.7% forecasted.
- Business spending rose 0.5% from the prior quarter, slowing down from the previous 2.4% reading.
- Private consumption slowed as well, down from 0.9% to 0.8% in Q2.
- Home loans in July jumped 2.0% month-on-month, accelerating from June’s 1.2% rise, and beating out the median estimate of a 1.0% gain. Investment lending meanwhile fell 3.9%, slowing from June’s 2.3% increase.
- Spot gold advanced to fresh highs, gaining by as much as 1.1% to $1,353.77/Oz earlier today on the back of lower yields, a weaker US dollar and amid continued geopolitical tensions.
- Momentum continues to remain strongly on the upside, having broken the important psychological resistance of $1,300/Oz last week. The next key resistance level to be tested lies at $1,375.34/Oz – a 3.5-year high. The precious metal should be supported above the $1,325/Oz as long as geopolitical tensions within the Korean peninsula remain heightened.
- According to a Bloomberg report, investors last week poured $1 billion into the largest exchange-traded fund backed by bullion, the most since mid-2016. ETF buyers are building their holdings, joining hedge funds that have boosted their net-long position in bullion futures by almost nine-fold since early July. Through Tuesday, assets in gold-backed ETFs tracked by Bloomberg posted the biggest 3-day gain since February.
- 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 added 0.3% to $49.25/bbl, and looks poise to end the week higher, its first weekly gain since July, as refiners ramp up crude processing after disruptions from Hurricane Harvey.
- US crude stockpiles rose by 4.6 million barrels last week, the first gain since end-June.
- Equifax Inc. said its systems were struck by a cyberattack that may have affected about 143 million US customers of the credit reporting agency. Intruders accessed names, Social Security numbers, birth dates, addresses and driver’s license numbers, Equifax said in a statement. Credit card numbers for about 209,000 consumers were also accessed, the company said. Equifax shares dropped more than 8% in after-hours trading.
- Spot 1.3380
- USDSGD fell 0.6% to 1.3365 earlier today, amid a rapidly weakening US dollar.
- The key support level of 1.3350 may be tested soon, and a break below it could signal more downside for the currency pair. The next support comes in at 1.3150.
- Spot 0.8112
- AUDUSD soared 1.2% to 0.8116 earlier, establishing a fresh 27-month high. The 2015-high of 0.8164 looks to be tested soon.
- Spot 1.2072
- USDCAD extended its decline, falling 1.0% to 1.2065 earlier today. The currency pair has been pressured by a recent surprise 25bps rate hike by the Bank of Canada, as well as the continued depreciation of the US dollar.
- 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 tenth consecutive day – its longest run since 2011, by 0.36% to 6.5032 per US dollar earlier today.
- USDCNH fell 0.7% to 6.4521, and is on the verge of testing a key support level, last reached in Mar. 2016.
- OCBC economist Tommy Xie said earlier this week the yuan may continue to 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 108.16
- USDJPY fell by as much as 0.8% to test the key 108 support earlier today, reinforced by falling US yields and a weakening US dollar.
- 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 1.3134
- GBPUSD is on course for a fourth consecutive gain, after the pair advanced 0.4% to 1.3139 this morning, backed by a narrowing US-UK 10yr yield differential.
- Immediate resistance should come in at 1.3267, last reached in early August.