Issue#: 404/2017

Weekly Macro:

The long-awaited outline of the US tax overhaul plan and President Trump’s nomination of Jerome Powell to lead the Fed were met with little fanfare in FX and rates markets, suggesting both outcomes were already fully priced in prior to their respective announcements. The US dollar initially sank and Treasuries climbed on the tax proposal, then the moves were pared as traders were sceptical of the bill’s likelihood of passing. The president’s well-telegraphed choice of Powell elicited little reaction.

 

US Dollar:

  • The Dollar Index was hardly changed on the week, as it continues to linger near 3-month highs, underpinned by expectations of the Fed raising rates next month for the third time this year.
  • The Dollar Index continues to be strongly supported above 94.267 – a strong resistance level which was breached in end-October. The breakout signalled the breakdown of the downward trend channel which has held firm since the start of the year. The next target level lies at 97.775, expected to be tested over medium term. The 94 handle should now provide a region for dollar bulls to buy in, so expect significant support around the level.
  • The US dollar surged to a 7-month high on Monday against the yen after BOJ Governor Kuroda stressed the need for powerful easing, spurring bets on a widening policy divergence between the US and Japan.

Treasuries:

  • The benchmark 10yr Treasury yield fell slightly on Friday after October’s nonfarm report showed wages stalled on a month-on-month basis, raising concerns about continuing low inflation.
  • On a weekly basis, the benchmark yield was lower, falling about 8 basis points following the news Trump would nominate Jerome Powell, a known dove, to replace current Fed Chair Janet Yellen.
  • The spread between 5- and 30-year yields fell last week to 81 basis points, marking the flattest curve since November 2007, right before the start of an 18-month recession. The difference between 2- and 10-year maturities is also the smallest in a decade. It was last negative in mid-2007.
  • Bill Gross said over the weekend that the Fed is nearly at tis limit for raising rates, given how much debt is sloshing around the US. According to him, the curve only needs to flatten 20 to 30 basis points more to signal an impending economic slowdown.

Gold:

  • Spot gold continues to remain resilient, holding above the key $1,260/Oz support. It has declined for 7 out of the past 8 weeks, but has shown signs of strength recently after Jerome Powell’s nomination from Trump as the new Fed chair.
  • The latest Commitment of Traders report showed gold’s overall net long position was cut by 37% last week. However, $1.58 billion worth has been poured in the iShares Gold Trust, taking holdings to a record and indicating that the safe haven asset is still in demand.
  • $1,260/Oz remains a significant support level; it also coincides with its 200-day moving average, last crossed in July. A break below it could signal more pain for gold bulls, with the next support coming in around the $1,200/Oz handle.
  • Conversely, if gold manages to hold above the $1,250/Oz – $1,260/Oz region, it could make a renewed push for the $1,300/Oz level again.

Oil:

  • Crude oil futures climbed Monday, from its highest close in 2 years as an anti-graft probe in Saudi Arabia was seen to consolidate power in the hands of Crown Prince Mohammed bin Salman, who’s backed OPEC-led output cuts. In the US, the rig count dropped to the lowest level since May, according to Baker Hughes Inc.
  • Oil futures extended its gains above the $55/bbl mark, and the next psychological target of $60/bbl could be tested over the medium term. Oil has risen for 4 straight weeks on signs that global inventories are shrinking and that OPEC and allied producers will extend their glut-reduction accord beyond its March expiration.

Upcoming Key Events:

  • China releases third-quarter current account; October foreign-exchange reserves and October CPI and PPI this week.
  • The Reserve Bank of Australia is expected to keep interest rates on hold at a policy-setting meeting on Tuesday.
  • US consumer sentiment probably cooled in early November from a more than 13-year high.
  • Also this week, the European Central Bank publishes its economic bulletin and the European Commission updates its economic projections for the euro area.
  • On the local front, Singapore’s retail sales in September is expected to have risen 3.5% from a year ago.

Weekly Thematic News:

 

Cybersecurity:

According to a Bloomberg Businessweek article, the kind of cyberattack that companies will finally take seriously is coming. Security experts call such an attack a cyberphysical, meaning it spills into the real world, causing property damage and perhaps deaths. It happened in western Ukraine two years ago. The attack used malicious software to briefly take out an electrical grid, causing a blackout that affected several hundred thousand people.

So far, most Americans and Europeans haven’t been forced to deal with the dangers of a large-scale cybersecurity breach. Although close to half of the US population had their personal data stolen from Equifax Inc. recently, the usual round of press outrage and congressional finger-wagging didn’t yield any serious charges.

Experts have recently found evidence that hackers responsible for Ukraine’s outages have been quietly rolling into the systems that run US energy grids. On Oct. 20, government officials issued an alert warning of a “multistage intrusion campaign” aimed at industrial control systems in critical infrastructure, including in “energy water, aviation, nuclear and manufacturing sectors”. US companies are said to be unprepared for such attacks; industrial control systems have been connected to the internet in recent years, with little thought given to securing them.

With such a backdrop, the growth of the cybersecurity is expected to grow exponentially. Investors can choose to park some money in this increasingly important trend by buying into the Cybersecurity US portfolio on iAdvisor, which has returned 18.2%% year-on-year as of Friday, outperforming the benchmark ISE Cyber Security Index (+17.5%).

 

Solar Energy:

Investors are accessing the possibility that tax credits for solar power may be removed by the US government should policy makers seek avenues to make up for lost revenue following the anticipated tax reform proposal.

The International Trade Commission offers owners of solar systems a tax credit worth 30% of their systems’ costs, and both companies would be adversely affected if it was reduced or eliminated. Wind and solar have been the fastest growing sources of US electricity since 2014, spurred by federal tax credits. The credits are scheduled to be mostly phased out in the 2020’s.

With the move to clean energy being a global and increasingly heavily-emphasized trend, the multi-year growth of the solar energy industry is expected to continue nonetheless. Investors can purchase the Solar Energy US portfolio on iAdvisor, which has outperformed every other portfolio over the last 30 days, returning 11.6% as of Friday.

 

© Jachin Capital Pte Ltd

UEN: 201419754M


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