Renewed Korean Anxiety Boosts Safe-Haven Demand

Daily Analysis - 10/10/2017

Gold Bullion Rebounds to 1-Week High as Geopolitical Tensions Persist

Prices for gold rose to the highest level in more than a week in overnight Asian trade, boosted by safe-haven demand amid a renewed flare-up in tensions between the United States and North Korea. However, despite this upside momentum, expectations of a Federal Reserve rate hike this year is capping the upside potential for the precious metal.

Softer US Dollar Adds to Bullion Demand

Uncertainty and geopolitical tensions surrounding how US President Trump might respond to North Korea has continued to dent market risk sentiment. Investors were spooked by weekend comments from President Trump when he suggested that years of negotiations with North Korea have proved futile.

Apart from North Korea, a weaker greenback is also lending support to bullion, but rising expectations that the Fed would lift interest rates again this year is weighing on momentum. Federal Funds futures are currently pricing in as much as an 88.00% likelihood of a US rate hike in December. Higher interest rates curb demand for the non-interest-bearing assets like dollar-denominated gold. XAUUSD was last seen around $1287.00, with $1290.00 an ounce represents the immediate resistance on the upside. A break above could see bullion prices rally all the way to $1300.00 an ounce.

German Industrial Output Surges

Industrial output in Germany posted its biggest monthly jump in over six years through the end of August, underpinning hopes for strong third quarter economic output in Europe's biggest economy. The combined output of manufacturing, energy and construction rose by 2.60% on the month after nudging down by -0.10% in July according to data published by the Economy Ministry on Monday. Aside from marking the biggest monthly surge since July of 2011, the figure handily beat the consensus expectations for a 0.70% gain.

Industrial output has been on a sustained uptrend since the start of the year, and favourable business sentiment has helped growth accelerate per the ministry’s accompanying statement. DAX 30 futures touched an intraday record of 12988 on Monday, ending marginally lower following a bout of profit-taking.

Japan’s Current Account Surplus Widens

Buoyed by foreign investment and dividends, Japan’s current account surplus expanded in August from a month earlier. The country registered a surplus for the 38^th-straight month, although it was squeezed to a degree by higher energy imports which weighed on the figure. The current account stood at JPY 2.38 trillion ($21.10 billion) last month, topping the consensus forecast calling for JPY 2.22 trillion surplus following a July reading of JPY 2.32 trillion. The primary income surplus, which reflects how much Japan earns from overseas investments, came in at JPY 2.24 trillion.

Another driver of the figures upside was the goods trade surplus which climbed to JPY 318.70 billion compared to expectations of JPY 264.30 billion. Separately, Bank of Japan Governor Haruhiko Kuroda reaffirmed the Central Bank’s resolve to continue its massive stimulus programme until inflation reaches the target. EURJPY is off the highs of the session to currently hover around 132.600.

Turkish Industrial Production Growth Eases

In another worrying sign for the Turkish economy after the local currency plunged to a record low against a basket of peers, Turkish industrial output expansion decelerated sharply in August from a year earlier. On a calendar adjusted-basis, production rose 5.20%, far below July's double-digit growth. Manufacturing production expanded at an annualized pace of 5.60%, while utility output grew by 7.30%.

Meanwhile, output in the mining sector recorded a drop of -4.70%. Month-on-month, industrial production fell by -0.10% from July missing projections of a 0.50% rise by a wide margin. However, these developments are currently being overshadowed by a diplomatic spat with the United States that threatens to sink the Lira even further. USDTRY has pulled back in early Tuesday trade to around the 3.6855-mark after spiking to just below 3.8000 on Monday.