Issue#: 382/2017

Weekly Macro:

US Dollar:

  • The US dollar gained for its third straight week last Friday, and registered its first monthly gain since February after Fed Chair Yellen last week reiterated the central bank is likely to stay on course and raise interest in December, even as inflation remain below the central bank’s objective.
  • Despite last month’s rise, the DXY continues to remain in a structural downtrend. A breakout above the next resistance of 94.145 – a 2-month high, could change that. To the downside, the DXY has been comfortably holding above 92.700 ever since it broke above it last week. The 50-day moving average looks to be providing further support.
  • In spite of last Friday’s weaker-than-expected PCE inflation data, the DXY seems to be threatening to break out of its downtrend channel following Monday’s better-than-expected ISM data.
  • There has been some speculation that Trump could opt for a Fed Chair who might pursue more aggressive policy tightening, and that could continue to buoy the dollar even further. Markets are beginning to price in the probability of Kevin Warsh, a former Fed governor with a hawkish bias, potentially replacing Janet Yellen after a report named him as one of the candidates. The other candidates are Gary Cohn, Jerome Powell and Janet Yellen herself.

Treasuries:

  • 10yr Treasuries declined for the third week in a row last week, after the probability of a rate hike by year-end rose to 70%, according to pricing data on Bloomberg.
  • The 10yr yield extended gains on Monday to 2.36%, its highest level since mid-July.
  • With the 10yr yield continuing to rise, the key resistance region around the 2.40% – 2.42% looks to cap future gains over the coming week. Having rising sharply by about 30 basis points over the past 3 weeks, some form of pullback or correction back to the 2.30% handle is due.

Gold:

  • Gold touched its lowest level since August and registered its biggest monthly loss this year in September, falling 2.1%.
  • Gold prices have fallen for the past 3 weeks as the Fed prepares to tighten monetary policy amid optimism over the health of the US economy, paring gains for the year down to about 12%. A rebound in the US dollar and improving risk sentiment in recent weeks have also dampened the appeal of bullion.
  • Having retreated back below its important $1,300/Oz last week, the pain is set to continue for gold bulls, with the next support only coming in around $1,250/Oz. Gold price looks to be capped at $1,300/Oz for the time being with momentum firmly rooted to the downside.
  • Despite a declining month, holdings in gold-backed ETFs have jumped as the worldwide total rose to its highest level since last November, expanding 2.4% to 2,155 metric tons. With geopolitical tensions remaining a concern on most investors’ radar, the need for safe-haven investments have driven demand in gold-backed ETFs. Billionaire Ray Dalio, the founder of Bridgewater Associates, has recommended investors consider placing 5% to 10% of assets in gold as a hedge against political and economic risks.

Oil:

  • Crude oil posted its biggest quarterly gain in more than a year, rising 10.5% from end-June. On a monthly basis futures traded in New York gained 7.7% in September, and settled above the psychological $50/bbl for the eighth straight session on Friday.
  • With WTI futures closing above its 200-day moving average of $50.85/bbl for the first time in 5 months last week. Oil is likely to be supported above it for the coming week, and is likely to consolidate between it and the 5-month high of $52.86/bbl.

Upcoming Key Events:

  • Investors will be keeping an eye out for PMI data being released this week (US, Europe, UK, Canada, Singapore) and September’s ISM in the US. It will be interesting to see if September’s numbers can continue to improve upon August’s strong showing.
  • The US will report its nonfarm payrolls for August, although numbers are expected to be weaker as a result of hurricanes Harvey and Irma. Average hour earnings will be scrutinized, and a better-than-expected showing could increase expectations further for a December rate0-hike.
  • It should be a relatively quiet week in Asia, with markets in China and South Korea closed for the week, while Hong Kong is shut on Monday and Thursday.
  • The RBA is expected to leave rates unchanged on Tuesday for the 14th straight month as it waits for signs of a gradual improvement in economic growth to play out more clearly. The central bank has continued to maintain expectations for economic growth at an annual 3% rate for the next few years, despite growth so far trending below that level. However the recent strength in the labour market has prompted some traders to reassess expectations on future rate hikes.

 

Weekly Thematic News:

Singapore Real Estate:

  • Singapore’s home prices rose for the first time in four years, snapping a record run of declines and confirming recent signs that the property market is rebounding. Private residential prices rose 0.5% last quarter, according to data from the Urban Redevelopment Authority released Monday.
  • Analysts at BNP Paribas SA and Morgan Stanley are among those forecasting that prices will rebound after officials in March boosted sentiment by loosening some curbs. In a UBS Group AG report last week on global property bubble risks, Singapore housing was described as “fair-valued”, with declines in prices likely to end this year and be followed by moderate increases.
  • As of Tuesday, the Smart Real Estate Singapore portfolio on iAdvisor is currently up 18.4% year-on-year, outperforming other REIT indices such as the SGX S-REIT 20 (+10.5%) and the FTSE Straits Times REIT (+11.3%).

Self-Driving Cars:

  • Ford Motor Co. and Lyft Inc. have agreed to team up on developing and deploying autonomous vehicles, sealing the latest alliance intended to popularize self-driving cars. The US automaker and ride-hailing service will share data to develop the systems and technology needed to design affordable driverless automobiles, and eventually get them onto Lyft’s network, they said in twin blogposts Wednesday.
  • According to a Bloomberg report, 40% of vehicles are expected to be fully autonomous by 2050, citing a Bernstein research note. Investors eager to jump into the burgeoning future trend can look into parking their money in companies that supply the parts, rather than trying to pick a future champion among the many car builders.
  • For example, companies developing advanced driver assistance systems (or ADAS) can prove to be an early profitable choice. According to the report, ADAS captures all the driver assistance technology and electrical systems that manufacturers are building on the path toward fully self-driving cars and include sensor manufacturers such as Sunny Optical Technology Group Co. and Sony Corp., or chipmakers such as Nvidia Corp. or Toshiba Corp.
  • More than a quarter of cars are expected to come with higher levels of automatic driver assistance programs, like pedestrian detection and lane departure warnings, within two years, and the industry is forecast to generate annual global revenue of $27 billion by 2020, according to Bernstein.
  • The Self-Driving Car US portfolio on iAdvisor has been one of the stellar performers over the past year, returning an impressive 36.1% from a year ago.

Solar Energy:

  • For Caribbean islands plunged into darkness after hurricanes Irma and Maria, more resilient, small-scale electric systems powered by the sun are looking increasingly attractive. To make the case for so-called microgrids, solar installations were reported to have remained largely intact while local utilities reported damage to more than 1,200 electrical poles following the aftermath.
  • It won’t come cheap however, with an estimated cost of $250 million to build about 90 megawatts of solar and storage across a chain of Caribbean islands – enough to power an estimated 15,000 US homes. As such, large scale state support and external funding will be pertinent for such initiatives to take place.
  • Up until recently, our Solar Power US portfolio has performed remarkably. Despite a 3.3% decline over the past month, the portfolio has returned a healthy 27.7% over the past year.

Renewables:

  • 2 initiatives pending in Washington, one to prop up large traditional power plants and a second to impose tariffs on solar panels, could let Trump upend wholesale electricity markets and tip the advantage away from renewables, according to a Bloomberg report released on Monday. Both moves invoke laws that haven’t been used in a decade and come as Congress begins debating a White House tax plan that may undermine a key source of financing for clean energy. Together, they raise questions about whether falling costs will be enough to keep wind and solar thriving under a president intent on supporting fossil fuels.
  • Trump’s tax plan overhaul may adversely affect wind and solar companies. These companies enjoy financial backing from large banks, insurers and other backers that take advantage of federal credits through tax-equity financing, a mechanism that lets businesses buy from renewable-energy developers’ tax credits that they can apply to their own tax bills. If corporate rates fall, investors will have less need for write-offs, potentially damping demand for this type of investment.
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