Daily Market Update 11th July 2016
OVERNIGHT NEWS
- US:
- US jobs rebounded strongly in June to 287k (Exp. 180k). May was revised down to 11k from 38k. The leisure and hospitality sector gained 59,000 jobs, the most in 1½ years. Temporary-help jobs rebounded 15,200. Healthcare and social assistance payrolls leapt 58,400. The return of 35,100 Verizon workers, who were excluded from May's payroll count while on a month-long strike, lifted information sector employment. Government added 22,000 jobs.
- The unemployment rate increased to 4.9% (Mkt est: 4.8%) from 4.7%. That uptick was largely due to a rebound in the size of the workforce, one that saw the labor force participation edge up to 62.7% from 62.6%.
- CHINA:
- Chinese consumer inflation decelerated during June. The National Bureau of Statistics reported Sunday that the Consumer Price Index increased 1.9% YoY (Mkt est: +1.8%), a tad slower than May (+2.0%). The Producer Price Index contracted 2.6% YoY (Mkt est: neg-2.5%) having fallen 2.8% in May.
- AUSTRALIA
- Malcolm Turnbull has claimed victory in the federal election. The ABC reports that the Liberal National Coalition has won 74 seats and is predicted to win two more. That would give the government the 76 seats needed for majority rule. Three independents are reported to have said they will support the Coalition on supply in the event that the government does not achieve a majority. Results in the Senate are still likely to be some weeks away.
- JAPAN
- Japanese Prime Minister Shinzo Abe’s LDP coalition won a convincing victory in an upper house election on Sunday. Japanese Broadcaster NHK is projecting that the governing coalition, plus lawmakers in favour of changing the Constitution, will occupy two-thirds of the upper house. The government currently controls two-thirds of the lower house. This super majority would allow the Diet to seek amendments to the Constitution. This hasn’t been amended since it was first enacted in 1947. Mr Abe has talked in the past about amending Article 9. This act sets out strict conditions for Japan’s use of Military force. Any amendment to the Constitution must be voted on by the people in a referendum.
FOREIGN EXCHANGE (INDICATIVE RATES)
| Currency | Last | % Change | Overnight Range |
|---|---|---|---|
| DXY | 96.32 | 0.11% | 95.826 – 96.697 |
| EURUSD | 1.1048 | -0.13% | 1.1002 – 1.112 |
| USDJPY | 100.7 | -0.13% | 100 - 101.28 |
| AUDUSD | 0.7561 | 0.95% | 0.7471 – 0.7574 |
| GBPUSD | 1.2949 | 0.22% | 1.2907 - 1.309 |
(Source: FabTrader)
Commodities (INDICATIVE RATES)
| Currency | Price USD | % Change | Overnight Range |
|---|---|---|---|
| Gold | 1371.66 | 0.87% | 1335.47 - 1375.34 |
| Silver | 20.49 | 3.75% | 19.2333 - 20.4982 |
| Oil (BRENT) | 46.48 | 0.60% | 46.15 – 47.23 |
| Oil (WTI) | 45.11 | 0.75% | 44.77 – 45.97 |
(Source: Bloomberg and Saxo)
COMMODITIES
Precious Metals: Precious Metals first sold off after the NFP report but subsequently have a huge rally after, especially for Silver which pushed Gold and Platinum higher. Gold has been well supported in recent weeks on the back that the Fed won’t hike rates anytime soon. The ratio Gold-Silver continue to tighten and the interest from China in the Shanghai Gold Exchange will only push higher and faster the Silver compared to Gold
Oil: Copper headed for its biggest weekly drop in two months on concerns about flagging demand in China and as stockpiles tracked by the biggest metals exchange jumped. Australia’s Department of Industry, Innovation and Science cut its outlook for prices next year by 20% as the global market remains well supplied, loss-making miners are holding out and steel output in China will shrink further. Iron ore is seen at $44.80 a metric ton next year, the department said in a quarterly report on Friday.
FOREX NEWS
Counter-intuitive move in the USD that first rallied and completely reversed, especially against EM Currencies. DXY finished slightly higher but the move is small compared to the strong NFP report
The 2 biggest movers were AUD and NZD on the back of higher commodities and overall risk on after the NFP report
As mentioned above, the beneficiary of the rally in Equities were EM currencies such as USDBRL, down 2%, USDSGD again below 1.3500 and USDMYR below the 4.0000 level
Asia stocks hit four-week high, look forward to stimulus
Asian shares enjoyed a relief rally on Monday as upbeat U.S. jobs data soothed immediate concerns about the health of the world's largest economy, while the prospect of more policy stimulus helped keep sovereign yields near record lows.
MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS jumped 1.9 percent to a one-month top. Australia added 1.8 percent and Shanghai .SSEC 1.1 percent.
Stocks in Germany .GDAXI were seen starting 0.9 percent higher, with the CAC .FCHI up 0.7 pct and the FTSE .FTSE 0.5 percent. EMINI futures for the S&P 500 ESc1 came within a point of their all-time top.
Japan's Nikkei .N225 climbed 4.5 percent, its biggest daily gain in three months, as Prime Minister Shinzo Abe flagged a fresh fiscal stimulus package after the ruling coalition won a landslide victory in the upper house.
"Abe's victory boosted confidence in investor sentiment, and winning a two-thirds majority sends foreign investors a message that Abe's policies will see a progress," said Hikaru Sato, a senior technical analyst at Daiwa Securities.
The Asian rebound came after news the U.S. economy added 287,000 jobs last month, well above median forecasts and recovering from a very weak May report.
In the end, investors concluded the data was not strong enough to revive the prospect of a rate hike from the Federal Reserve for the next few months, benefiting bonds and stocks.
The Dow .DJI gained 1.4 percent, while the S&P 500 .SPX firmed 1.53 percent and the Nasdaq .IXIC 1.64 percent. The rise set the seal on an eight-session run that has seen U.S. equities add $1.4 trillion to market capitalization.
Several Fed officials are scheduled to speak this week, offering plenty of opportunities for the market to glean clues about policy.
The Bank of England meets on Thursday and might well cut its 0.5 percent interest rate to offset the economic drag from Britain's vote to leave the European Union.
Governor Mark Carney has already opened the door to easing, including the expansion of its 375 billion-pound bond-buying program.
NO END TO EU UNCERTAINTY
The only question was timing, with analysts in a Reuters poll divided on whether a cut would come this week or in August.
Various reports out Monday argued for urgent action, with consumer spending falling last month, the business outlook darkening by the most in four years and economic activity in London slowing sharply.
"The outcome of the UK referendum has dealt a significant shock to the outlook for the global economy," warned Christian Keller, an economist at Barclays.
"It introduced a higher uncertainty about Europe's future, and raised questions about globalization more generally," he added. "Confidence and financial channels could potentially propagate the effects to the U.S., China and beyond."
That was one factor behind the relentless demand for sovereign debt that has driven down yields, which move inversely to prices, and kept the pound at its weakest since 1985.
Benchmark U.S. 10-year paper US10YT=RR was paying 1.37 percent, with Japan at -0.28 percent and Germany -0.20 percent.
Sterling was stuck at $1.2963 GBP=D4 on Monday, having failed utterly to rebound from the 13 percent loss suffered in the immediate wake of Brexit.
The Japanese yen eased as the Nikkei rose to reach 101.35 per dollar JPY=, while the euro stayed on the defensive at $1.1049 EUR= having touched a low of $1.1003 on Friday.
In commodity markets, spot gold XAU= was steady around $1,364.80 per ounce.
Crude prices edged down to near two-month lows on seasonally weak consumption, despite comments from Saudi Arabia's oil minister that the oil market was becoming more balanced.
Brent crude LCOc1 was down 16 cents at $46.60 a barrel, while NYMEX crude CLc1 fell 23 cents to $45.18. (Source: reuters.com)
