MKS PAMP Group - Daily Asia Wrap

Range Asian Hours (from Globex open)

 
MACRO: U.S. stocks closed lower Friday amid mixed earnings and despite weak data that once again clouds the chance of a December rate hike. Nonetheless the benchmark S&P500 index still managed to log its best monthly performance - up +8.3% - in some four years. The Dow Jones Industrial Average dropped -92.26 points, or -0.52%, to 17,663.54, the S&P500 lost -10.05 points, or -0.48%, 2,079.36 and the Nasdaq Composite declined -20.526 points, or -0.4%, to 5,053.749. Losses in financials (-1.4%), staples (-1.1%) and tech (-0.8%) led the way lower, while energy (+0.7%), utilities (+0.5%) and telecoms (+0.4%) were lifted. European stocks managed to close mixed on Friday, yet similar to their American counterparts confirmed one of the best monthly performance since July 2009. The FTSE Euro First 300 was -0.01% lower to 1,484.46 (+8.3% in October), the DAX rose +0.46% to 10,850.14, the FTSE100 declined -0.54% to 6,361.09 and the CAC40 notched up +0.24% to 4,897.66. Treasuries climbed amid month end re-balancing from fund managers but recorded a price loss for October. The yield on the benchmark U.S. 10y bond logged the largest 1 month increase since June, while the yield on the 2y note posted the largest monthly gain since February. On Friday the 2y note yield held steady at 0.724% and the 10y bond yield dropped 3bps to 2.142%.  

On the data front last Friday, U.S. consumer spending recorded its smallest increase in eight months during September. Spending crept up +0.1% MoM (+0.2% expected) after rising a revised +0.4% in August (+0.3% prior). Consumers upped their spending on durable goods by +0.8% and spending on services by +0.4%. Personal income edged up +0.1% (+0.2% expected), the smallest increase since March. The price index for personal-consumption expenditures, the Federal Reserve’s key inflation measure, inched down -0.1% MoM as expected, the largest decline since January. YoY prices rose just +0.2%, while core prices, which exclude food and energy costs, inched up +0.1% MoM (+0.2% expected) and +1.3% YoY (+1.4% expected). Consumer confidence dropped toward the end of October with the University of Michigan final consumer sentiment index falling to 90 (92.5 expected), from the flash reading of 92.1, but bounced well from the final September reading of 87.2. “The entire October rebound from September was due to gains in confidence among lower income households, while confidence among households with incomes in the top third of the income distribution retreated a bit due to concerns about financial markets”, said Richard Curtin, the survey’s chief economist. However, “the average level of the Sentiment Index thus far in 2015 (93.1) is higher than any other year since 2004”. Over the weekend China’s official manufacturing purchasing managers index held at 49.8 in October (50.0 expected) to remain in contraction territory for a third straight month. China’s official non-manufacturing purchasing managers index, one which includes services and related sectors, declined to 53.1 from 53.4 in September. That is its slowest pace since the financial crisis
 
Richmond Federal Reserve President Jeffrey Lacker said the U.S. economy is strong enough to handle an interest rate increase and that is why he dissented at last week’s FOMC meeting. "My reasoning was based on my belief that with the steady growth in output and household spending that we have been observing - and expect to continue - the real (inflation adjusted) rate of interest should be higher than its current level of less than negative 1%," he said. "My assessment was also supported by labour markets that had tightened considerably and my confidence that inflation will return to our 2% objective after the temporary effects of low energy and import prices have passed. I did not believe at the time that the uncertainty stemming from those [global] events was sufficient to justify further delay in policy normalisation".

PRECIOUS: The precious complex continued to be under pressure on Friday adding a modest daily decline to its post-FOMC losses. Gold opened around 1147 and proceeded to trade in a sideways fashion between 1145 and 1149 for the majority of the Asian session. Chinese demand began to pick up during the afternoon with the SGE trading up to a $4 premium led by a sharp move lower in USD/CNY. Trading chat indicated that the 1150 level was the first intra-day barrier to watch with stops building above the figure and into the low 50's. Perception became reality with decent selling around 1149/50 halting any further upside momentum as sellers gradually took control and pushed the metal down to the low of 1139.40 by around 11am in NY. The metal failed to produce any meaningful headline during the US session in what was a reasonably uneventful day. The metal closed at 1142.20/70. All-in-all last weeks rhetoric from the Fed has put a dampener on the complex which is a far cry from the strong bullish momentum observed only a week before. Looking forward, with little to be seen on the support-side until the medium-term trend line around 1120, and with producer hedging continuing to add to the topside resistance, it may be a difficult week for the yellow metal. Silver and the PGM's played out a similar tune to gold with the exception of palladium which found a strong bid up to 689 by around 9am in London before giving up the majority of its daily gains by the close.
     
ASIA TODAY: The market opened on the back foot this morning with some decent sized sell-orders in Ecomex weighing on the market when liquidity was at one of the lower points of the day. We eventually broke through $1140 and selling began to intensify with weak longs looking to bail. We traded down as low $1137 when sizeable stops were tripped and the gold was instantly swept down towards $1135 on a 3300 lots sweep (GCZ5). It almost instantly traded higher from the lows however, rocketing back to $1142 in a matter of minutes before settling around $1140-41 into the Asian futures markets respective opens. Tocom did little to whip up any price action across the metals when it opened although there was some selling seen on the open of the SGE. The premium on the Chinese exchange was a little lower than what we saw last week at around +$1.00-2.00 over the loco London price, which prompted selling in both the SGE and Ecomex. We traded back through $1140 and quickly touched $1137.50, but similar to before there were buyers waiting for the dip and aggressively paid the market back above $1140 once again where we remained into the afternoon. Volume through Ecomex was decent today with 19k lots turning over after 7 hours of trade. As we move into the afternoon buying has been increasing although decent offers on Ecomex between $1142-1143 (cash) are keeping a lid on things. Silver and the PGM's also fell in line with gold at the SGE open although their moves were muted compared with the yellow metal, the latter continuing to trade heavily into the afternoon while gold and silver recovered.

On the data front today, Australian building approvals surprised growing at +2.2% MoM in September (+1.0% expected) from a downwardly revised -9.5% (-6.9% prior) in August. Reaction in the AUD was limited continuing to grind higher into lunch. An hour and 15 minutes later saw the release of the Caixin China manufacturing PMI (formerly HSBC manufacturing PMI) which came in a little stronger than expected at 48.3 in October (47.6 expected) after posting 47.2 the prior month. The slightly better than expected result pushed gold $1 higher and pushed the AUD and NZD to their daily highs. Ahead today look out for EuroZone Markit manufacturing PMI, Markit U.S. Manufacturing PMI and U.S. construction spending and ISM manufacturing figures. Have a good day ahead.