Issue#: 450/2017

Spot values at a glance:

USD/SGD

USD/CNH

AUD/USD

USD/JPY

USD/CAD

GBP/USD

Daily Observations:

Asian share markets were mixed and oil prices fell on Monday as relief that U.S.-led strikes on Syria looks unlikely to escalate was tempered by concerns at Russia’s potential reaction to new sanctions from Washington. The Dollar Index pared Friday’s gains, while US 10yr yields ticked higher.

 

More Russian Sanctions:

Fresh sanctions will be imposed on Russia related to Syria’s reported use of chemical weapons as the US and UK assess the fallout and next steps after Friday night’s strike on the Middle Eastern country, the top US diplomat to the United Nations said. UN Ambassador Nikki Haley, speaking Sunday on CBS’s “Face the Nation,” said US Treasury Secretary Steven Mnuchin will announce new sanctions Monday that “go directly to any sort of companies that were dealing with equipment” related to Syrian leader Bashar al-Assad and his chemical weapons.

The US previously expelled Russian diplomats and sanctioned Russia for a suspected nerve-agent attack against a former spy in Britain and other actions. Syria has refused to negotiate, and it’s time for Russia, a Syrian ally, to make that happen because Russia can’t cover up anymore, Haley said.

While President Donald Trump declared “mission accomplished” on Twitter Saturday, after the US, France and the UK launched military strikes Friday night in response to a suspected chemical attack on civilians by Syrian leader Bashar al-Assad, Haley said the US is not finished there.

 

Putin Warns Against Further Syria Strikes:

According to Reuters news, Russian President Vladimir Putin warned on Sunday that further Western attacks on Syria would bring chaos to world affairs, as Washington prepared to increase pressure on Russia with new economic sanctions.

In a telephone conversation with his Iranian counterpart, Hassan Rouhani, Putin and Rouhani agreed that the Western strikes had damaged the chances of achieving a political resolution in the 7-year Syria conflict, according to a Kremlin statement. “Vladimir Putin, in particular, stressed that if such actions committed in violation of the UN Charter continue, then it will inevitably lead to chaos in international relations,” the statement added.

 

China’s Economy Expected to Continue Solid Growth:

In spite of concerns regarding trade wars, debt worries and regulatory crackdowns, China’s economy is expected to power ahead in the first quarter this year. According to the median estimate of economists in a Bloomberg News survey, growth maintained a 6.8% pace, well ahead of a target for about 6.5% expansion this year. The report is due for release Tuesday morning in Beijing, along with retail sales and industrial production data for March.

Expansion of 6.8% in the first quarter would match the pace of growth in the last three months of 2017 and be just a fraction off the 6.9% recorded for last year. People’s Bank of China Governor Yi Gang last week said economic indicators performed better than expected in the first quarter, amid continued improvement in the global outlook.

Risks remain though, as analysts remain cautious over an escalation in trade wars with the US, as well as growth being hampered by campaigns to curb financial risk and pollution. In addition, most Chinese cities have seen a property slowdown since late 2017, and the sector is expected to remain a drag on growth in the coming quarters.

 

China-Japan Hold First Economic Talks in 8 Years:

Japan and China hold their first high-level economic dialogue in almost 8 years on Monday against a backdrop of trade threats from the US. While neither side is publicly linking the talks in Tokyo between Chinese Foreign Minister Wang Yi and his Japanese counterpart Taro Kono to President Donald Trump’s protectionist policies, the meeting is a timely reminder of not only how much they both rely on the American market, but also how interdependent the 2 Asian nations have become.

Trade may be on the table for discussion when Japan’s Prime Minister Shinzo Abe meets with Trump later this week in Florida, but the rise of intra-Asian trade has weakened the power of US attempts to coerce countries. China has replaced the US as the number one trading partner for most nations in Asia.

That being said, the US is still a more important overall economic partner for many in Asia. Japan, for example, has multiple times as much money invested in the US as it does in China, and even with the recent tensions, many Asian companies rely on the US market.

 

Abe Approval Ratings Fall:

Japan Prime Minister Shinzo Abe’s cabinet approval rating fell to 31%, the lowest since he returned to power in 2012, according to an Asahi newspaper poll conducted April 14 and 15. Some people in politics and the market consider 30% to be a key level for retaining power in Japan.

According to Nomura Holdings, Japanese stock investors should be wary of the risks of domestic political upheaval and trade wars. While the trade rhetoric between Trump and China calmed last week, Nomura points to America’s upcoming midterm elections as a reason for worry: the Trump administration could introduce more protectionist measures to play to voters.

Nomura also pointed to falling approval ratings for Abe and his government in March, noting that political concerns could “erupt again.” Tens of thousands of people joined a demonstration outside Japan’s parliament Saturday, calling Abe a “liar” and seeking his resignation, in a sign of growing public anger over cronyism scandals engulfing Abe.

Weekly Thematic News:
 

Cyber Security:

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.

With cybersecurity becoming an increasingly important component of businesses and national security, cybersecurity industry growth is expected to continue expanding at an exponential rate. Investors can choose to park some money in this growing trend by buying into the Cybersecurity US portfolio on iAdvisor, which has returned 33.1% from a year ago as of Friday.

 

Solar Energy:

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.

Investors looking to invest in the solar energy space can purchase the Solar Energy US portfolio on iAdvisor, which has outperformed all but 2 portfolio overs the last year, returning 55.5% as of Friday.

 

 

FX Updates:

USD/SGD:

Spot: 1.3119

USDSGD continues to be supported above its 1.3000 psychological handle, following MAS’ decision to normalise its monetary policy decision by returning its currency policy band to an estimated +0.5% p.a. appreciation path.

Further consolidation between 1.3000 and 1.3200 is expected for now. 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.

AUD/USD

Spot: 0.7775

AUDUSD remained capped below its 200-day moving average of 0.7815 last week, failing to end the week above the 0.7800 handle. Failure to build on last week’s gain is likely to lead the currency pair back towards its 4-month lows again – around the 0.7650 region. RBA minutes and jobs numbers due on Tuesday and Thursday respectively are likely to be the main drivers of the AUD this week.

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.

USD/CAD:

Spot: 1.2609

USDCAD’s decline since mid-March seems to have taken a pause over the past couple of days. However, the pair is still struggling to regain back above its 200-day moving average.

The key event this week is the BOC’s policy decision due on Wednesday. The probability of a hike is 20%, according to Bloomberg’s implied odds, although the probability of a May-hike has started to rise in the past week.

USD/CNH:

Spot: 6.2785

Not much action for USDCNH in recent days, with the pair fluctuating around the 6.3000 handle for most of April.

The currency pair is trading near the bottom range, after reaching a 2-1/2 year low in end-March, and looks likely to continue its sideway trend over the medium term, ranging largely between 6.2500 and 6.3700.

 

USD/JPY:

Spot: 107.22

USDJPY retreated from a 7-week high Monday as rising political risks surrounding PM Abe encouraged speculators, in addition to investors seeking safe haven refuge from the potential escalation of the Syrian conflict.

Prior to Monday’s decline, the currency pair has recovered well from a 16-month low, rising 2.5% from end-March; its next resistance level to test lies around the 108 handle.

 

GBP/USD:

Spot: 1.4263

GBPUSD reached a 10-week high last Friday, as Trump’s tweets and the dovish account of the March ECB meeting led investors to buy sterling against both dollar and the euro. For the week ahead, GBPUSD is expected to approach its January high of 1.4345, although UK data such as retail sales due Monday may pull it in the opposite direction.

 

© Jachin Capital Pte Ltd

UEN: 201419754M


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