MKS PAMP Group - Daily Asia Wrap

Range Asian Hours (from Globex open) 

  
MACRO: U.S. equities closed trading narrowly lower following yet another disappointing earnings result from computer hardware giant IBM (-5.8%) and despite a better than expected rebound in September housing starts. The Dow Jones Industrial Average slid -13.43 points, or -0.08% to 17,217.11, the S&P500 shed -2.89 points, or -0.14% to 2,030.77 and the Nasdaq declined -24.50 points, or -0.5%, to 4,880.972. Losses in healthcare (-1.5%) and tech (-0.4%) were countered by wins for telecoms (+0.8%), industrials (+0.5%) and financials (+0.5%). It was a similar story in Europe with the energy and materials sectors weighing on markets for a second successive day. The FTSE Euro First 300 Index lost -6.54 points, or -0.45% to 1,431.95, the DAX gave up -0.16% to 10,147.68, the FTSE100 slipped -0.11% to 6,345.13 and the CAC40 declined -0.64% to 4,673.81. U.S. treasuries declined as the posiive September housing starts data removed some of the gloom that has encapsulated the U.S. growth outlook in recent weeks. As a result the 2y note yield rallied +4.7bps to 0.633%, while the 10y bond yield climbed +4.8bps to 2.071%. LME base metal futures closed mostly lower, zinc down -1.5%, aluminium -0.3% and copper -0.1%, while nickel edged up +0.2%. Crude was softer again December WTI down -0.6% to $46.29 and December Brent fell -0.25% to $48.71. In FX, the USD ended mixed vs most G10 peers, with CAD strength (+0.30%) and NZD weakness (-0.56%) in focus. CAD traded bid following Trudeau’s landslide victory in yesterday’s Canadian Parliamentary election - markets seeing this as bullish with immediate pressure on the BoC likely lifted according to Goldman Sachs. USDCAD failed to break the 100 dma at 1.2927 however, bouncing off the lows and retracing some of its gains in tandem with oil. Canada remains on the agenda with BOC today, where a  neutral/hawkish tone is anticipated. NZD other the other hand, took a nosedive after milk price declined in the latest Fonterra auction (price index -3.1%). NZD has massively outperformed G10 over the last month, rallying nearly +12% off the China induced lows. However this weaker milk auction, together with the technical rejection of key levels in NZD crosses, could signal some corrective action in the wings.   

Limited data was released overnight, the main focus being U.S. housing starts, which rebounded in September to hold above the 1 million rate for a sixth consecutive month. Housing starts leapt +6.5% MoM (+1.4% expected) to a seasonally adjusted annual rate of 1.206mln (1.142mln expected). The improvement was driven by an +18.3% spike in multi-family units, those which include apartments and condominiums. Single-family home starts, which make up nearly two-thirds of the market, edged higher by just +0.3% to a 740k unit pace. New applications for building permits slid -5.0% (+0.8% expected) to a seasonally adjusted annual rate of 1.103mln (1.17mln expected). Starts surged +25.4% in the West and +23.4% in the Northeast. Starts crept higher by +0.6% in the South but that was enough to send them to their highest level since October 2007. Permits for single-family homes in the South rose to their highest level since Jan-08. 
  
PRECIOUS: Gold had a fairly quiet, yet positive session yesterday, bouncing off the Asian lows around $1167-68 where it has held for 2 days now. Asia began with a bearish tone Tuesday, hovering above $1170 but feeling fairly heavy during early trade. The SGE opened at flat to a slight premium which did not help matters and the yellow metal broke through $1170 and quickly tested lower. The USDCNY fixing higher at 6.363 drew out more SGE sellers and forced the exchange into a discount which prompted Loco London gold to the days lows of $1167.80 before some very modest physical demand curbed a move lower. Over the afternoon USDCNY dropped back to 6.348, which dragged the SGE back into premium territory, changing investors sentiment and pushing spot back towards $1175 as books were handed over to Europe. NY traded a $10 range throughout the day falling initially after the decent U.S. housing figures towards $1171 but then running as high as $1181.50, in what appeared to be some rushed short covering. By the days end gold finished up just above the 200 dma at $1176. Silver remained range bound overnight although was incredibly volatile, shooting up to highs of $15.97 in early London, again just after the NY open, then all the way off to $15.79 then closing the session back towards $15.92. PGM's had a solid day, platinum trading back above $1020 (+0.6%) and palladium above $690 (+1.4%), having slowed down their ascent over the last few months and moving into consolidation mode.     
      
ASIA TODAY: It was another very slow day in Asia today for gold, the yellow metal consolidating in a fairly tight $4 range. Gold tracked sideways for the first few hours after Ecomex opened this morning around $1176.50-1177 with light turnover on the U.S. futures exchange. Liquidity was slightly less than normal due to a holiday in HK, although considering how quiet it has been this week their absence was not that noticeable. Once China came in the premium had moved slightly to the right compared to yesterday and was sitting around $1-2 over spot which helped push the spot metal to the intra-day high. The PBoC set the parity rate lower today at 6.3473 (6.363 yesterday) which kept gold buoyant throughout the morning. It remained quiet into the afternoon session just tracking a $1 range between $1177-78 for the most part, with the USD remaining stable. As London dealers stepped in gold and silver were offered immediately down to the days lows in line with a softer EUR and AUD, last now $1173.80/10 and $15.75/78. For now we think gold should stabilise between $1168-80, at least until this weeks ECB. Have a good day ahead.