Spot values at a glance:
Asian stocks were mixed after signs that trade tensions and the escalation in Syria are easing boosted risk appetite. Indices in Tokyo, Singapore and Sydney gained, while stocks in Hong Kong, Shanghai and Kuala Lumpur slipped into the red. The dollar steadied and Treasury yields pared gains.
Trump Weighs Re-joining TPP:
President Donald Trump told lawmakers he is considering re-joining the Trans-Pacific Partnership, the Asia-Pacific trade pact he withdrew from shortly after taking office. A week after escalating tensions with his threat to impose tariffs on an additional $100 billion in Chinese products, Trump said Thursday the 2 countries ultimately may end up levying no new tariffs on each other.
“Now we’re really negotiating and I think they’re going to treat us really fairly,” Trump said during a White House meeting with Republican governors and lawmakers from farm states. “I think they want to.”
The remarks were another conciliatory signal from the administration following tit-for-tat tariffs proposals from the world’s largest 2 economies that rattled markets. Trump also indicated that talks are progressing toward successful renegotiation of the North American Free Trade Agreement.
Markets went risk-on, with US stocks advancing 0.8%. US Treasury 10-year yields rose to around 2.84%.
JPMorgan Bullish on US Earnings:
JPMorgan Chase & Co. expects earnings to exceed consensus estimates by 4% to 5% this season, even after those forecasts were raised by 6% following the passage of tax cuts. The firm has already said it sees upside for US stocks in this reporting period due to factors such as the tax overhaul, a pickup in deal activity and support from buybacks.
JPMorgan says valuations on the S&P 500 are below their historical median based on forward consensus earnings-per-share estimates. They also say that companies’ record cash holdings in a low-rate environment are supportive of stocks. US corporate earnings have beat consensus estimates by an average of 3.1% over the past 5 years, according to data compiled by Bloomberg.
Hong Kong Monetary Authority Intervenes:
The Hong Kong Monetary Authority bought the local currency for the first time since the current trading band was imposed in 2005, after the exchange rate sank to the weak end of its permitted range. The de facto central bank purchased HK$816 million on Thursday. The intervention is significant because the HKMA’s purchases have the potential to boost borrowing costs by draining liquidity. That would signal the end of an era of ultra-cheap money that made Hong Kong the world’s least affordable market for housing and propelled equities to all-time highs
Singapore’s MAS Tightens Policy:
Earlier today, the Monetary Authority of Singapore, which uses the exchange rate as its main policy tool, increased the slope of the currency band slightly from zero percent, it said in a statement on its website. That was in line with the forecasts from the majority of economists in a Bloomberg survey and signalled the MAS would seek an appreciation in the Singapore dollar.
The central bank is moving away from the easing stance adopted in recent years as growth in the export-led economy strengthens and inflation continues to pick up slowly, but it’s set to take a measured approach to tightening given the brewing trade war between Singapore’s 2 largest trading partners – the US and China.
In a separate report on Friday, the trade ministry said preliminary data showed gross domestic product grew 4.3% in the first quarter from a year ago, in line with the median estimate in a Bloomberg survey. The MAS said growth this year should come in slightly above the middle of the 1.5% to 3.5% forecast range.
Weekly Thematic News:
A cyberattack that US natural gas pipeline owners weren’t required to report has lawmakers taking a closer look at how the industry is handling such threats, raising the prospect of tighter regulation.
At least 7 pipeline operators from Energy Transfer Partners LP to TransCanada Corp. said their third-party electronic communications systems were shut down, with 5 confirming the service disruptions were caused by hacking.
Though the cyberattack didn’t disrupt the supply of gas to homes and businesses, it underscores that energy companies from power providers to pipeline operators and oil drillers are increasingly vulnerable to electronic sabotage. It also showed how even a minor attack can have ripple effects, forcing utilities to warn of billing delays and making it more difficult for analysts and traders to predict a key government report on gas stockpiles.
This isn’t the first time hackers have had oil and gas pipes in their sights; the Congressional Research Service reported intrusions targeting pipeline communication systems back in 2012. A web attack could “disrupt pipeline service and cause spills, explosions, or fires – all from remote locations,” the service said in a report.
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After all the dire warnings that President Donald Trump’s solar tariffs would be a job killer, it’s possible that employment may tick up this year. While 2018 is unlikely to be a banner year for the US industry, solar-energy proponents now say the number of new positions could inch past a 2016 record. The reasons: The industry is still in growth mode, the tariffs on imported solar equipment announced in January weren’t as onerous as feared and developers hoarded panels.
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USDSGD briefly spiked below 1.3100 following the MAS’ decision earlier today to slightly increase the slope of its policy band from 0%, but reversed course soon after to trade higher. The central bank’s policy decision was already seen as priced in by most, and a decline below 1.3000 is not expected.
From a longer-term perspective, the downward trend which began more than a year ago remains intact, until at least the key resistances at 1.3200 and 1.3350 get breached.
AUDUSD looks poised to gain for a fourth straight day as it approaches its 1-month high of 0.7785. The Australian dollar has strengthened of late amid signs that trade tensions between the US and China were easing.
The longer-term trend’s base around the 0.7600 handle remains a key support region; a decline below it is likely to lead to a reversal in the 2-year old uptrend. To the upside, any further rallies look likely to remain capped below its 200-day moving average around the 0.7800 handle.
USDCAD continues to trade near a 2-month low of 1.2545. The pair failed to regain above its 200-day moving average last night, and looks to be strongly towards more downside moves. Continued strength in oil prices should also provide further boost for the Canadian dollar. A move lower to 1.2400 is possible over the medium term.
USDCNH maintained below the 6.3000 round handle, although the currency pair reversed yesterday’s declines after the PBOC set its daily reference rate this morning weaker than expected.
The pair has pared declines from a 2-1/2 year low in end-March, and looks likely to continue its sideway trend over the near-to-medium term, ranging largely between 6.2500 and 6.3700.
USDJPY is currently testing a 5-week high at 107.50, after the USD gained overnight following Trump’s positive comments on trade and Syria last night. The currency pair has recovered well from a 16-month low; its next resistance level to test lies around the 108 handle.
GBPUSD reached a 2-month high last night, testing it for the second time in 2 weeks, on the back of a weaker USD following easing concerns regarding an escalation in Syria and trade wars.
The bias remains to the upside; the currency pair is likely to retest its January high 1.4345. Given the prospect a Bank of England rate hike is likely next month, the currency pair is likely to remain supported above the 1.4000 handle.