• Precious Metal: Gold trading in a tight $2 range this morning, despite headlines BERNANKE: RATES MAY STAY NEAR ZERO FOR CONSIDERABLE TIME AFTER BOND BUYS END, PERHAPS WELL AFTER UNEMPLOYMENT FALLS BELOW 6.5 PCT. Yesterday, it touched a low of 1272.75/1273.75 prior to reaching a session high of 1278.50/1279.50 while the dollar held steady as global equities retreated from record levels after the OECD cut its global growth forecasts. Thereafter, the metal declined to close the day at 1273.50/1274.50. Silver remained largely unchanged to open at 20.36/20.41. After touching a low of 20.30/20.35, it followed gold to a high of 20.47/20.52 before retreating amidst selling pressure to conclude the session at 20.33/20.38. Flow wise in gold: inter banks have bought near current levels with the order book showing support at 1240 and topside resistance near 1310. The Shanghai arbitrage has provided little opportunity for participation pricing near $5, indicative of light physical demand despite gold pricing below 1300 handle. • Technical Commentary Gold closed lower today at 1274. It has still not breached the uptrend, where support comes in at around 1265 today. Support comes in at the recent 1261 low, followed by the major low of 1251 from October 15th. We expect a retest of 1251, a breach of which would open up a full retracement to 1180. Silver closed lower today at 20.33. The short-term trend is very bearish, having breached the major low at 20.49 which should now act as resistance. We expect a retracement back to the low of 19.16 from August 7th. The gold-silver ratio is trading higher at 62.65. It has now convincingly cleared prior resistance at 62.28, the 50% retracement of the July to August decline, and this area should now act as support. The next target is 63.50, which is the 61.8% retracement level. Macro Highlights • The US employment cost index (ECI) rose 0.4% q/q in the third quarter, modestly below our forecast and the consensus (both 0.5%) and slightly below the 0.5% reading in Q2. This leaves the index up 1.9% on a y/y basis for the fifth consecutive quarter; dating back to the start of 2011, y/y growth in the ECI has fluctuated in a narrow range between 1.8% and 2.1%. • Though Typhoon Haiyan will likely impact growth and inflation in the near term, we think the growth impact is manageable and that the central bank will look through a supply-side related rise in inflation given well-anchored expectations. We continue to expect the BSP to raise the policy rate by 25bp in Q3 14. We remain bullish on the peso given supportive fundamentals, and expect the underperformance of Philippines 5y CDS to reverse. • The Royal Bank of Australia (RBA) retained a weak easing bias while complaining about the high exchange rate. The RBA is clearly frustrated by the high currency and the Governor seems likely to touch on this when he talks on the 30th anniversary of the float on Thursday. • TOP NEWS * Federal Reserve Chairman Ben Bernanke said on Tuesday the Fed will maintain ultra-easy U.S. monetary policy for as long as needed and will only begin to taper bond buying once it is assured that labour market improvements would continue. Bernanke also said that while the economy had made significant progress, it was still far from where officials wanted it to be. Here * The Fed may need to wait until next year, possibly until March, before beginning to wind down its massive bond-purchase program, Chicago Fed President Charles Evans said. * All policy options are open for the European Central Bank and it has discussed the broad possibility of asset buying, its vice-president said, as the OECD urged it to consider such action to aid a weak recovery. Here * Slowing emerging markets are dragging on the worlds economic recovery and advanced countries are struggling to pick up the slack after years of debt crises, the OECD said, trimming its global growth forecasts. Here * Chinas officials indicated on Tuesday how they plan to steer reforms on interest rates, the currency and stock markets, following a top-level party meeting that promised sweeping changes over the next decade. Here * JPMorgan Chase said it routinely overstated the quality of mortgages it was selling to investors, and it agreed to pay $13 billion to settle related charges with the U.S. government. Here • PRECIOUS METALS NEWS * SPDR Gold Trust, the worlds largest gold-backed exchange-traded fund, said its holdings fell 1.50 tonnes to 863.01 tonnes on Tuesday – another four and a half year low * South African utility Eskom declared a power emergency on Tuesday, urging key industrial customers to reduce consumption to ease pressure on the grid and warning it might apply rolling blackouts similar to those implemented five years ago. Palladium and platinum rose on the news the power emergency could hit output. Here * Ghana, Africas number two gold producer, plans to present a mining windfall tax bill to parliament, Finance Minister Seth Terkper said on Tuesday, in a move likely to set up a clash between a hard-pressed industry and governments need for increased revenue. The announcement will hurt an industry that already faces a heavy tax burden because of royalties, income tax, Value Added Tax increased on Friday by 2.5 percentage points to 15 percent, and steep power prices, one mining executive said. Here • DATA/EVENTS (Bangkok Time) 1400 Germany Producer prices 1900 U.S. Weekly mortgage market index 2030 U.S. Retail sales 2030 U.S. Consumer inflation 2200 U.S. Existing home sales 0200 FOMC releases minutes from Oct. 29-30 meeting KEY DRIVERS • Global equities declined overnight following some solid falls in Asian equities yesterday and some generally downbeat US corporate announcements. The US dollar and US government bond yields were little changed in light volumes as markets await comments from US Federal Reserve Chairman Ben Bernanke and FOMC November meeting Minutes tonight. Commodities markets were quiet with gold prices little changed and the spot iron ore price down a modest 0.5% to USD136. • In Europe, the ZEW investor survey for November was generally positive. Expectations for economic growth rose to 60.2 from 59.1, its 7th consecutive monthly rise. Expectations for Germany, the euro zone’s largest economy, also rose solidly. These data are consistent with the recent trend in euro zone PMI manufacturing indices which points to a gradual recovery in output in the region. • In the US, the Q3 employment cost index was slightly softer than expectations, increasing 0.4% q/q (mkt: 0.4% q/q). Wages growth slowed to 0.3% q/q after increasing 0.4% q/q in Q2 while benefits rose to 0.7% q/q versus 0.4% q/q in Q2, suggesting a general absence of cost-push inflation pressures. These data come after US Federal Reserve Chair Nominee Janet Yellen said in her testimony last week that she would like to see stronger wages growth. • Overnight in China, there was more news from People’s Bank of China Governor Zhou Xiaochuan on a guidebook for banking and financial reforms following some of the decisions from the 3rd Plenum. The main points were: the PBOC will widen the yuan trading band in an orderly way enhancing CNY 2-way flexibility, and that the yuan exchange rate would be kept “basically stable at a reasonable and balanced level”. There will be an increased role for markets to determine exchange rates and exit from FX intervention. The interest rate market is to be liberalised (in the medium term) and the PBOC will push ahead with interbank CD issuance and trading in the near term. • The Organization for Economic Cooperation and Development downgraded its global growth forecasts for this year and next as growth in emerging economies including India and Brazil are expected to moderate. The OECD expects the global economy to expand 2.7% this year and 3.6% next year, down from 3.1% and 4% respectively in May. • Yesterday in Australia, the RBA November Board Minutes suggested the Bank is comfortably on hold. While the Bank remains open to the possibility that rates may still need to be lowered further, this is a very mild ‘non-active’ easing bias and would require a weaker outlook for the economy than the RBA’s current (downgraded) growth forecasts. The Minutes were a little more positive and highlighted the pick-up in consumer and business confidence and some other generally more positive forward-looking economic indicators. • In Australia today, Treasury Secretary Martin Parkinson will appear before a Senate Economics Committee in Canberra today as part of the 2013-14 Supplementary Budget Estimates. He is likely to be questioned by Senators on the necessity of lifting the debt ceiling to AUD500bn (rather than the opposition party’s proposed AUD400bn), Treasury’s advice to the Government on the recent AUD8.8bn capital injection to the Reserve Bank of Australia, public sector job cuts and their impact on the budget and estimates of uncertainty around Treasury’s budget forecasts, among other things. Also today, Assitant Governor (Financial Markets), Guy Debelle, speaks on Legacies from the financial crisis: some ongoing areas of concern. The only data due for release are the detailed Department of Employment job vacancies data (previously DEEWR) for October. OVERNIGHT MARKETS UPDATE • US Treasuries sold off across the curve, with a large supply calendar weighing on prices. The 2-year yield rose 1bp to 0.29% and the 10-year yield increased 3bps to 2.71% • Australian bond futures also sold off, but outperformed US Treasuries at the long end of the curve. The implied 3-year yield rose 1bp to 3.13% and the implied 10-year yield increased 2bps to 4.19%. • US equities were typically lower overnight ahead of the FOMC Minutes and Fed Chairman Bernanke’s speech tomorrow night. Poor results from Best Buy and Campbell Soup also weighed on sentiment. The S&P 500 declined 0.1% to 1,789, the Nasdaq eased 0.4% to 3,933 while the Dow Jones was unchanged at 15,980. • European equities lost ground overnight. The German DAX closed the session 0.3% lower at 9,193, the Euro Stoxx 50 declined 1.0% to 3,049 and the FTSE 100 fell 0.4% to 6,698. • Australian SPI futures fell 0.5% to 5,340. • Currency markets were again little changed overnight. The AUD began the session a touch higher after comments by PBoC Governor Zhou, suggested that the PBoC would reduce holdings of matured US Treasuries. This headline saw currencies typically associated with diversification away from USD, such as the AUD and NZD, benefit. Tonight, Fed Chairman Bernanke speaks, while US retail sales, CPI data and the FOMC minutes are due for release. FOMC members will be looking for evidence that the recent lift in employment will be sustained and solid activity will be key. • Indicative trading levels: AUD 0.9421, AUD/EUR 0.696, AUD/GBP 0.58436, AUD/NZD 1.1278, AUD/JPY 94.38 • EUR/USD 1.3536, GBP/USD 1.6123, USD/JPY 100.18 • Oil prices were mixed overnight. Brent futures fell 0.9% to USD107.00 per barrel on reports that talks this week between Iran and world powers could lead to an easing of sanctions against Iran. In contrast, WTI futures were up 0.6% to USD93.41 per barrel after news of a fire at Total’s Antwerp refinery in Belgium. • The spot gold price edged up 0.1% to USD1,275.2 per ounce, steadying after sharp losses in the previous session as investors gauged Federal Reserve New York President William Dudley’s earlier comments about the outlook for monetary policy and the strength of the US economy. • Base metals prices were mostly higher overnight, boosted by a slightly weaker US dollar and as China detailed more of its reforms. Copper was broadly unchanged, while nickel (+0.1%), zinc (+0.4%), aluminium (+0.4%) and lead (+0.7%) all moved up. Thermal coal futures edged 0.1% higher to USD85.3 per tonne, while spot iron ore moved 0.5% lower to USD136.3 per tonne. • Agricultural commodities prices were mixed overnight. Corn (+1.5%) and wheat (+0.7%) both rose, reportedly on technical buying. Soybeans (-0.7%) fell, pressured by concerns of softening export sales. cocoa (+0.5%) moved higher, while sugar (-0.6%), cotton (-0.2%) and palm oil (-1.4%) all closed lower. Canola was broadly unchanged.
Posted on: Wed, 20 Nov 2013 02:25:42 +0000
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