MKS PAMP Group - Daily Asia Wrap

Range Asian Hours (from Globex open) 

MARKETS/MACRO: U.S. equities lost ground Friday as banks struggled following news the Department of Justice had proposed that Deutsche Bank pay a ~$14bln fine to settle a set of GFC mortgage securities probes and as law-makers intensified pressure on Wells Fargo in the wake of its product cross-selling debacle. Investors also digested the implications of firming consumer price inflation ahead of this week’s FOMC meeting and further weakness in oil prices. The Dow Jones Industrial Average slid -88.68 points, or -0.49%, 18,123.80, the S&P500 index fell -8.10 points, or -0.38%, to 2,139.16 and the Nasdaq Composite edged down -5.12 points, or -0.1% to 5,244.566. Losses in financials (-0.9%), energy (-0.9%) and industrials (-0.8%) led the decline, while utilities (+0.9%) and healthcare (+0.1%) were the lone winners. European stocks closed at six weeks lows, weighed by financials, particularly Deutsche Bank which was sent reeling by a stunning $14bln settlement claim from the U.S. Department of Justice. The battered German bank closed -8.5% on the day, wiping off EUR1.5 billion worth of market cap. The Euro Fist 300 Index plunged -10.64 points, or -0.79% to 1,328.49 and the Euro Stoxx 600 retreated -2.52 points, or -0.74% to 337.82. The DAX was spanked -1.49%, FTSE100 edged down -0.3% and the CAC40 lost -0.93%. Short-term U.S. treasury yields logged their strongest rally in some three weeks following confirmation of the stronger than expected rise in consumer prices. The 2y note yield jumped +3.6bps to 0.762% and the 10y bond yield inched up +0.3bps to 1.693%. October WTI crude slid -$0.88, or -2%, to US$43.03 a barrel - a 1 month low. The number of North American oil rigs crept up for an 11th time in 12 weeks by 2 to 416. Rising supply issues from Nigeria and Libya also continued to depress prices. 

On the data front U.S. consumer prices increased at a faster than expected rate during August, assisting rates and USD higher. The headline CPI rose a seasonally adjusted +0.2% MoM (+0.1% expected) and “Core” prices, i.e. ex-food and energy, jumped +0.3% (+0.2% expected), the largest increase since February. The gains reflected a sharp increase in medical-care prices, up +1%, the biggest one-month jump in the category since the mid 80's. The CPI’s gauge of medical-care costs has soared recently, posting annual growth of +4.9% in August from +4% in July, +3.6% in June and +3.2% in May. YoY, overall prices increased +1.1% (+1.0% expected) and core prices rose +2.3% (+2.2% expected). YoY food prices were unchanged, the weakest reading on food inflation since February 2010, energy prices were down 9.2%. Elsewhere, U.S. consumer confidence held firm during the first half of September, Michigan Uni's preliminary consumer sentiment index printing 89.8 (90.6 expected), unchanged from the final August reading. The current conditions component slipped to 103.5 from 107.0, while the expectations index improved to 81.1 from 78.7. “Overall, consumers remain reasonably optimistic about their economic prospects,” said Richard Curtin, the survey’s chief economist.   

PRECIOUS: Gold fell for the first week (-1.3%) out of 3 last week, with heavy price action on Friday following a better than expected CPI print out of the U.S. gold pushed lower into the very important support zone between $1300-1310 ($1306.65 low). During the Asia day on Friday, after a brief morning spike to $1318, the yellow metal was steadily sold off towards $1313 before finding any support. With China absent on both Thursday and Friday last week, the natural support they almost always provide was lacking, which left gold more vulnerable. Despite persitent selling however on the futures market gold managed to hold $1310 throughout the European session. During the NY hours, the CPI came in better than expected and caused the Greenback to push higher, weighing on the precious complex. EURUSD was hardest hit falling from 1.1250 earlier in the Asia session to 1.1150 in NYK. Gold fell to a low of $1306.65 just above major support of the 100 dma ($1305.80), the Jan-Sep uptrend line ($1304.40) and Sep 1st low $1302.60. This formidable support zone held again however - for a fourth time since the Brexit high - with the metal rebounding into the end of the day closing at $1310. Speculators continued to cut their net long comex gold position, taking profit ahead of the looming FOMC this week. It is the most that funds have cut their holdings since May (11% down for the week). Gold ETF positions also declined last week, putting holdings on pace for a second consecutive monthly decline. This week focus will be squarely fixed on the FOMC and BoJ rate decisions, with some ongoing profit taking/liquidation likely for gold into these key risk events.             

ASIA TODAY: With China back in for the first time since last Wednesday and last participating when we were trading at $1320-25, it was a fairly safe bet they would be on the bid today. From the COMEX open there were signs of underlying demand, with early SE Asian traders scouting for offers. Gold consequently ticked up a few dollars in the opening hour towards $1312.50, but with Japan out on holiday demand waned leading into the SGE open. As widely anticipated Chinese investors were on the bid from the onset which helped propel spot gold back through $1315 over the first half hour. There was still some decent offers visible on December Comex, which countered the surge of Chinese buying and kept things contained, not able to run to far through $1315. The SGE premium certainly reflected the improved demand today, pushing up from $3.50 intially to $4.50-5.50 over the loco London gold price at the conclusion of the AM session. The strong buying from the Chinese was also bolstered by a worrying report over the weekend from the BIS which stressed the growing risks of China's mountain of debt. Over the afternoon price action steadied with the yellow metal maintaining a $1315-17 range and trading good volume at 28k lots (GCZ6). Silver was the stand-out in the complex, opening around $18.82 and pushing up to $18.90 just before the SGE open. Some aggressive buying was then seen on the SGE and ECOMEX quickly pushing through the $19.00 spot equivalent and tripping stops all the way up to a peak of $19.16. It has barely taken a step back since and currently sits at $19.15, up +1.95% intra-day. In other markets equities punched higher with the Shanghai Composite up +0.5% and Hang Seng +0.8%. The USD gave back some ground with NZDUSD leading the charge (+0.58%) at 0.7310 and USDCAD not to far off (-0.50%) at 1.3150. Ahead today there is no significant data released so we expect the metals to track USD and treasury moves. Have a good day ahead.