Daily Market Update 4th August 2016
ECONOMIC DATA OF THE DAY
| Time | CY | Indicator | Forecast | Previous |
|---|---|---|---|---|
| 1900 | GBP | Bank of England Bank Rate | 0.25% | 0.50% |
| 1900 | GBP | BOE Asset Purchase Target | 375 Bln | 375 Bln |
| 1900 | GBP | BOE Inflation Report | N/A | N/A |
OVERNIGHT NEWS
- US:
- ADP Employment change showed that private payrolls increased 179k (Exp. 170k), better than expected. Job creation was again drive by the service sector. Service providers added 185,000 workers, albeit down from the 203,000 hired in June.
- The US service economy remained on a solid expansionary path in July after a print of 51.4 in the PMI index.
- FED SPEECH:
- Chicago Federal Reserve Bank President Charles Evans said the U.S. economy seems to be in relatively good shape and the FOMC could raise interest rates once this year
- INDIA:
- India's upper house approved the creation of a national sales tax, a decade after it was first proposed. The constitutional amendment now now moves on to the Prime Minister Modi-controlled lower house. It then must be ratified by at least half of all states, a process projected conclude by year-end. Prime Minister Narendra Modi now faces the tough part of his reform agenda: deregulating labor and land. That's likely to be contentious given the political interests of the rural masses.
- India says that the GST can eventually boost economic growth by as much as 2 percentage points. The GST will subsume over a dozen state and federal levies to simplify commerce and create more of a single market
- KOREA:
- Several Bank of Korea board members raised concerns about the financial risks associated with the low interest rate environment, minutes from July 14’s meeting showed. One said the effects of June’s rate cut and the supplementary budget need to be studied.
- INDONESIA:
- Indonesia widened its 2016 budget deficit estimate to 2.5% of GDP from 2.35% as energy and commodity prices drop, Finance Minister Sri Mulyani Indrawati said. The government will need 17 trillion rupiah ($1.3 billion) in additional financing to bridge the gap, and will cut spending further.
FOREIGN EXCHANGE (INDICATIVE RATES)
| Currency | Last | % Change | Overnight Range |
|---|---|---|---|
| DXY | 95.56 | 0.39% | 95.138 – 95.609 |
| EURUSD | 1.115 | -0.54% | 1.1141 – 1.1217 |
| USDJPY | 101.29 | 0.01% | 100.75 - 101.57 |
| AUDUSD | 0.759 | -0.32% | 0.7568 – 0.7614 |
| GBPUSD | 1.3325 | -0.07% | 1.3281 - 1.3372 |
Commodities (INDICATIVE RATES)
| Currency | Price USD | % Change | Overnight Range |
|---|---|---|---|
| Gold | 1357.49 | 0.38% | 1354.29 - 1366.59 |
| Silver | 20.43 | 1.08% | 20.3747 - 20.728 |
| Oil (BRENT) | 43.10 | 2.41% | 41.56 - 49.22 |
| Oil (WTI) | 41.11 | 3.60% | 39.19 - 41.06 |
COMMODITIES
Precious Metals: Gold snapped its longest rally in 6 weeks on steady US employment. Current resistance level at 1375 remained to be tested.
Oil: Oil futures rebounded sharply from 3-month low, on an unexpected large drop in gasoline inventories as EIA data showed gasoline stockpiles -3.3m bbl (est -300k bbl), the most since April overshadowed crude +1.413m bbl (est. -1.75m bbl). On technicals, RSI is oversold first since Jan 2016 and could signal a timely halt in recent sell-off.
FOREX NEWS
- USD was well supported overnight against G10 and the market is now waiting for NFP and BOE rate decision today
- NZD is finding good offers above 0.7200 with no specific news
- USDCAD came off below 1.3100 with the rally of Oil
- USDTRY moved 1% higher because of higher than expected inflation (1.16% MoM vs 0.6% exp and 8.79% YoY vs 8.16% exp)
Sterling slips as BoE rate call looms, Asian shares boosted by oil
The British pound edged lower on Thursday as investors anticipated the Bank of England would cut interest rates to a record low later in the session, while a rebound in oil prices from four-month lows lifted Asian stocks.
The sterling slipped 0.1 percent to $1.3301 GBP=D4, but remained some distance from its three-decade low of $1.2798 hit almost a month ago.
Meanwhile, MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 0.5 percent, led by gains in resource shares, recovering some ground lost in Wednesday's 1.5 percent decline.
European shares were also set to open higher, with financial spreadbetter CMC Markets expecting Britain's FTSE 100 .FTSE to rise 0.1 percent, and Germany's DAX GDAXI and France's CAC 40 .FCHI to start the day up 0.3 percent.
The Bank of England is expected to cut its policy rate by at least a quarter percentage point to 0.25 percent, making its first reduction since 2009 in a bid to ward off a recession that appeared increasingly likely after the United Kingdom voted to quit the European Union in June.
Currency dealers were uncertain how sterling would react to a rate cut, as it has been largely factored in and the scale of sterling's declines since the Brexit vote could limit the immediate downside.
"Given the market has a 25 basis-point cut priced at 100 percent, one would expect a huge spike in GBP/USD if they fail to ease," Chris Weston, chief market strategist at IG in Melbourne, wrote in a note.
"But the real issue is whether they cut by 50 basis points and give a strong indication of quantitative easing in the September meeting."
Britain's economy is slowing at the fastest pace since the financial crisis, based on Markit's monthly all-sector Purchasing Managers' Index on Wednesday, which recorded the steepest month-on-month decline on record.
Many market players also believe the BoE may resume its multi-billion-pound quantitative easing program of government bond purchases.
The euro fell 0.1 percent to $1.1141 EUR=EBS, retreating from its 5-week high of $1.1234 touched on Monday.Oil, which jumped more than 3 percent on Wednesday, extended gains in Asian trade on Thursday, as larger-than-expected draw on gasoline stocks in the United States eased concerns about global supply glut.
Brent crude futures LCOc1 rose 0.7 percent on Thursday to $43.38 per barrel, extending its recovery from Monday's four-month low of $41.41. U.S. crude CLc1 gained 0.8 percent to $41.16 per barrel.
Energy shares also rose, contributing to gains on Wall Street, with the S&P 500 index .SPX closing up 0.3 percent on Wednesday.
Japan's Nikkei .N225, which earlier touched a near-four-week low on Thursday, rebounded to end the day up 1.1 percent as the yen weakened.
Against the yen, the dollar was 0.4 percent stronger at 101.650 yen JPY=D4, inching away from Monday's low of 100.68 yen.
Bank of Japan Deputy Governor Kikuo Iwata said on Thursday that a comprehensive review of the central bank's monetary policy next month would focus on the transmission mechanism and obstacles to its monetary policy. However, it is not meant to offer a specific direction for future monetary policy, he said.
Japanese government bonds, which suffered their worst sell-off in more than three years this week on worries the Bank of Japan may be running out of realistic easing options, remained under pressure.
The 10-year JGB yield rose 1 basis point to minus 0.080 percent JP10YTN=JBTC.
The broad increase in risk appetite helped Chinese shares recover some ground lost earlier. China's CSI 300 index .CSI300 gained 0.2 percent, and the Shanghai Composite .SSEC advanced 0.1 percent. Hong Kong's Hang Seng .HSI climbed 0.6 percent.
The dollar bounced back 0.7 percent from Monday's five-week low against a basket of six major currencies as investors looked to July payrolls data on Friday.
The dollar index added 0.1 percent to 95.647 .DXY =USD on Thursday, though it is still far below a 4 1/2-month peak of 97.569 hit last week.
A report from payrolls processor ADP showed on Wednesday U.S. private employers added 179,000 jobs in July, a tad above market expectations and bolstering hopes that Friday's data could show moderate growth in employment.
Soft second-quarter U.S. GDP data and some other mixed data have dented the dollar as they reduced expectations that the Federal Reserve will raise rates this year.
"A September rate hike could only be justified if July and August’s payrolls prove exceptionally strong," David Lafferty, chief market strategist at Natixis Global Asset Management, wrote in a note. "However, a post-election tightening in December is still in the cards provided the macro data doesn’t deteriorate."
Chicago Federal Reserve Bank President Charles Evans said on Wednesday that one rate increase might be appropriate this year, despite his worry that inflation is undershooting the Fed's 2 percent target, because "the real economy is doing quite well."
Read More at www.reuters.com
