MKS PAMP Group - Daily Asia Wrap

Range Asian Hours (from Globex open) 

MARKETS/MACRO: U.S. equity markets closed more or less unchanged in a narrow, yet choppy session. Investors adopted a cautious approach amid fresh worries about the Trump administration’s widening diplomatic rifts with both key allies and trade partners and ahead of tonight’s January NFP report. The DJIA crept lower by -6.03 points, or -0.03% to 19,884.91, the S&P500 inched up +1.3 points, or +0.06% to 2,280.85 and the Nasdaq declined by -6.451 points, or -0.11% to 5,636.199. Wins for REITs (+1.3%), utilities (+1%) staples (+0.8%), and energy (+0.6%) countered losses in teleco's (-1.25%), materials (-0.5%), financials (-0.4%) and industrials (-0.3%). European stocks generally edged lower on the back of disappointing updates from Deutsche Bank (-5.2%, Q4 net loss of EUR 1.9 billion) and Danish drug maker Novo Nordisk (-7.3%, Q4 operating profit below consensus and downward revision to sales and profit outlook). The FTSE Euro First 300 index retreated -4.58 points, or -0.32% to 1,428.56 and the Euro Stoxx 600 index dipped -1.25 points, or -0.34% to 361.95. Regionally the DAX slid -0.27%, CAC40 was flat -0.01% and FTSE100 inclined +0.47%. U.S. treasuries strengthened, supported by continued momentum in Gilts as BoE rate-hike expectations were pared, after the U.K. central bank signalled it was in no rush to tighten monetary policy despite a recent increase in inflation. The 2y note yield fell -1bps as a result to 1.203% and the 10y bond yield crept up +0.4bps to 2.474%. Crude oil prices ended the day relatively unchanged, although intra-day moves were large. President Trump’s condemnation of Iran’s ballistic missile test raised the geopolitical risk premium, which combined with the weaker USD saw Brent briefly surpass $57.00 a barrel. Russian Energy Minister Alexander Novak said cuts under the OPEC deal had reached 1.4M barrels per day in January, and that the global oversupply would end in the middle of the 2017. 

On the data calendar the number of Americans applying for economic benefits edged lower last week, initial jobless claims falling -14k to 246k (250k expected) in the week to 28 Jan. Claims have now remained beneath 300k for just under 2 years, the longest streak since 1970 according to JP Morgan. Continuing unemployment claims, reflecting benefits drawn by workers for longer than a week, dropped -39k to 2,064k (2,063k expected) in the week to Jan 21. U.S. worker productivity rose for a second successive quarter in Q4, however the pace of growth slowed to the smallest annual increase in five years. Non-farm productivity grew at a +1.3% annualised rate (+1.0% expected) from an upwardly revised +3.5% in Q3 (+3.1% prior). Productivity grew just +0.2% for 2016, the smallest gain since 2011, after growing +0.9% in 2015. What is also disappointing is that productivity has grown at an annual rate of less than 1% in each of the last six years. Across the Atlantic The BoE left its policy settings unchanged overnight as expected, yet significantly upgraded its short-term GDP forecasts (up to +2.0% for 2017 vs +1.4% previously), with Governor Carney stressing that there is more slack in the economy than previously forecast. As a result, the BoE left its inflation forecasts largely unchanged (+2.7% for 2017 and +2.6% for 2018). 
  
PRECIOUS: Gold hit fresh yearly highs overnight, bursting through the $1218-21 resistance zone that has held comfortably since mid-January, and moving to a peak of $1225.35, before the USD moderated and the metal slipped back beneath $1220. Asia yesterday was again fairly quiet, with China enjoying their final day of the Lunar New Year holiday, and liquidity on the low side. We opened in Asia on the lows ($1209) and with the USD losing ground throughout the morning, the yellow metal naturally made its way higher as the day progressed. By early afternoon we were trading as high as $1216.50, with a mix of producer selling and spec buying balancing the price. During London the metal gave up a little ground but managed to hold above $1210 which was positive. Late in London however, the gold surged through $1220 and traded just shy of $1225 in nearly a straight line as chunky stops were tripped through the important resistance level. Around the NYK open it was pushed through to the daily high of $1235.35, before the USD sell-off began to moderate and equities recovered from their initial liquidation. It was a gentle trickle lower from there, pushing back beneath $1220-21 and ultimately consolidating between $1215-18. Interest in ETF's has begin to pick up, as investors seek to safe-guard against any Trump risk/uncertainty. On Wednesday the SPDR ETF, the world's largest bullion backed ETF, rose just over 10.6 tons oz (+1.3%), the biggest single day increase since the U.S. election. Current holdings in the ETF sit at 811.22 tons. Looking ahead tonight's NFP is the major risk event. We feel that the market is expecting a good figure and if delivered, feel gold should hold in relatively well, with specs still looking to buy Au on dips. If the number is a particularly bad one (which we do not believe will be the case) gold should rally - hard. Immediate resistance still sits between $1218-25 (38.2% Fib retracement of the July16-Dec16 decline, 100 dma and sequence of previous peaks), with little after that up until $1245-50. On the downside $1208-10 followed by $1200 and $1181, which are the supports.                   

ASIA TODAY: Gold traded in a fairly tight range today, taking it's cues largely from swings in the volatile USDJPY. The yellow metal hovered around $1215 for the first few hours of trade initially appearing a little heavy if anything. Shortly after the China open USDJPY began to rally on the news that the BoJ would consider looking to buy ~450 bln yen worth of JGB's (5-10yr). A number of specs were quick to fade the rally in the pair however, USDJPY only briefly running above 113 (113.14 high), before plummeting back towards 112.52. Gold reacted as one would expect, initially sinking lower (but holding $1212) then reversing to trade just short of $1217. With China returning for their first days trade in a week, it was surprising to see very little interest one way or the other from them. Volumes were very light on the exchange and the premium throughout the morning remained around $13-15 over the spot price. The USDJPY remained volatile leading into the BoJ announcement about a potential bond buyback scheme and kept the metals on edge too, gold choppy in a tight range. The announcement which was expected around 2pm Tokyo time came 1.5 hours early, with the headline * BOJ CONDUCTS FIXED-RATE OPERATION TO BUY JGB'S AS YIELDS RISE. JGB's rallied swiftly following the release and USDJPY jumped sharply from 112.60 to over 113.00. This suppressed gold, which chewed through sizeable bids around $1212 right around the SGE close. Support for gold remained in place however, with the metal not falling far through that level. In other markets equities at time of writing are generally softer - Hang Seng -0.45%, Shanghai Composite -0.6%, ASX200 -0.45% and the Nikkei bucking the trend up +0.15%. WTI crude is marginally firmer up +$0.20, or +0.35% to $53.85 and the USD is mostly flat vs. the majors with the exception of the USDJPY which is up +0.20%. Ahead on the data calendar the main focus will of course be the NFP's out of the U.S. , however, also look out for a host of European services and composite PMI's, retail sales and U.S. ISM non-manufacturing, Factory orders and durable goods orders. Have a good day and weekend.