Spot values at a glance:
Asian equities slipped into the red as technology shares sank under earnings-related pressure while materials stocks fell. The benchmark 10yr Treasury yield neared a 1-month high while the US dollar strengthened, with the Dollar Index approaching the 90 level.
US May Curb China Tech Investment:
The Treasury Department is considering using an emergency law to curb Chinese investments in sensitive technologies in the US, said Heath Tarbert, an assistant secretary in Treasury’s international affairs office.
The investment curbs would be the latest step in President Donald Trump’s plan to punish China for what the US sees as violations of American intellectual-property rights. The president asked Treasury Secretary Steven Mnuchin to consider investment restrictions on Chinese firms after the administration released the results of its probe into China’s IP practices last month.
Trump is pushing his administration to crack down on what he considers unfair trade practices by China. He has threatened to levy as much as $150 billion of tariffs against China in response to intellectual property theft and forced technology transfer. Beijing has retaliated by proposing $50 billion of tariffs on American goods, and pledging further action if necessary.
China Firms Increasingly Reliant on Foreign Revenue:
China’s key economic indicators released on Tuesday highlighted how the country’s domestic consumption had propelled growth in the first quarter, offsetting external risks as trade tensions escalate.
Yet for the country’s publicly listed companies, foreign business has never been so important. The percentage of sales that mainland-listed companies get outside their home country has climbed to 13%, on a market capitalization-weighted average, according to Bloomberg calculations based on the latest full-year financial reports. The figure, which excludes banks, is the highest in Bloomberg data going back 10 years.
The shift underscores China’s incentive to shield itself from disruptions stemming from any US trade war, and to focus its companies’ attentions on President Xi Jinping’s Belt and Road Initiative to deepen ties with economies across the Eurasian landmass. For investors, the rising share of overseas sales means that buying into China’s stock market isn’t solely a bet on the domestic side of the world’s second largest economy.
Japanese Inflation Slips:
March headline CPI rose 1.1% from a year ago in March, in line with expectations and slowing from a 1.5% gain in the previous month. Excluding the effects of fresh food, inflation gained 0.9% over the same period, meeting consensus estimates but slowing from a 1.0% increase in February.
Despite this month’s slowdown in inflation, the underlying uptrend is seen to be intact as BOJ Governor Haruhiko Kuroda begins his second term vowing to achieve 2% inflation. The BOJ had been making progress in generating inflation, with domestic demand picking up, although the yen’s rise has complicated the outlook. This month Governor Haruhiko Kuroda said he was confident the target would be reached next year, at which point the BOJ would start considering how to normalize monetary policy over the rest of his term.
Leading Chip Maker Issues Mobile Phone Warning:
Apple Inc. and a slew of chipmakers fell last night after Taiwan Semiconductor Manufacturing Co., the leading chip manufacturer for the smartphone industry, issued a growth forecast that rekindled concerns that the handset boom is waning.
Taiwan Semiconductor on Thursday predicted that sales for the current quarter will be a billion dollars less than analysts had projected. That followed a report by the International Monetary Fund earlier this week saying smartphone shipments declined for the first time, a reminder that the best days may be in the past.
TSMC is the world’s foremost manufacturer of chips designed by other companies, and its earnings are a key indicator of demand in a world where chipmakers and electronics manufacturers increasingly outsource costly production. The company produces the main semiconductor components of the iPhone and many of the world’s other best-selling smartphones.
Brexit Bill May Exceed 39 Billion Pounds:
The UK’s Brexit payments to the European Union could exceed the 39 billion-pound ceiling of the Treasury’s estimate, the government auditor said, reviving discussion about one of the most controversial elements of December’s divorce agreement.
Prime Minister Theresa May at the end of last year reached agreement with her 27 EU counterparts on the draft terms of an exit deal that included payments from Britain to EU coffers totalling 35-39 billion pounds. The Brexit bill, though unpalatable to the most ardent Brexit supporters in May’s Conservatives, was presented as a UK victory, because figures as high as 100 billion euros had been cited during the talks.
Bond Traders Refocus on Key 3% Mark:
The benchmark 10yr Treasury yield reached 2.93% Thursday, within about 2 basis points of the 2018 high touched in February. The slump in the world’s biggest bond market came as UK gilts slid along with German bunds amid a burst of supply out of Western Europe.
A rally in commodity prices to multiyear highs added to the pressure on government debt, weighing on longer-maturity Treasuries. The yield curve from 5 to 30 years steepened for the first time since April 5. While optimism over global growth was the driver for higher yields in February, this time it’s commodities, according to a Weeden & Co. analyst, as the prospect that costlier commodities might stoke price pressures and fuel inflation.
“This is a key risk,” the analyst said. “Higher rates and inflation without higher economic growth raises the discount rate for equity cash flows (lower P/E) but also raises stagflation risks for the economy and the stock market.”
Carney Hints May Rate Hike Isn’t a Foregone Conclusion:
Bank of England Governor Mark Carney said the UK should prepare for a few interest-rate increases over the next few years, but hinted that the widely expected hike next month isn’t a done deal.
In a BBC interview that sent the pound lower, Carney said policy makers will make their decision “conscious that there are other meetings” at which they could act this year. He also acknowledged recent soft UK economic numbers, though added that the Monetary Policy Committee will look at the economy “in the round.”
An increase is “likely” this year, Carney said in the comments, made on the sidelines of the IMF meetings in Washington. He noted that the central bank will have to adjust its decisions around the Brexit negotiations and eventual divorce deal to “keep the economy on a stable path.”
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.
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 38.2% from a year ago as of Thursday.
Interest rates are rising, making debt much more expensive for capital-intensive industries across America. But there’s at least one exception: the solar business.
While the cost of borrowing has been increasing since 2016, some banks are taking a smaller cut to win deals from solar developers. Loans of 7 years or longer can be obtained for 137.5 basis points over Libor, down from as much as 200 basis points last year. Even the higher-rate loans for residential projects are getting cheaper.
More than $200 billion has been spent in the U.S. on utility-scale solar farms and residential systems over the past decade. Many projects were funded when interest rates were near zero in the years following the financial crisis. After a dropoff in the past two years, installations are expected to increase in 2019 and 2020, according to Bloomberg New Energy Finance.
Investors looking to invest in the solar energy space can purchase the Solar Energy US portfolio on iAdvisor, which has outperformed all 28 portfolios over the last year, returning 62.0% as of Thursday.
USDSGD recovered back above the 1.3100 handle overnight following strength in the greenback. Further consolidation between 1.3000 and 1.3200 is expected over the medium term. From a longer-term perspective, the downward trend which began more than a year ago remains intact, at least until the key resistances at 1.3200 and 1.3350 get breached.
AUDUSD declined back towards its 0.7700 handle Friday, extending its corrective slide from a 5-week high just north of 0.7800 which coincides with the pair’s 200-day moving average.
Today’s violent rejection of the 0.7800 handle is likely to lead the currency pair back towards its 4-month lows again – around the 0.7650 region. 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.
USDCAD recovered back above its 200-day moving average of 1.2620, in spite of a somewhat cautious and hawkish message by the Bank of Canada on Wednesday, where the central bank left its key rate unchanged, as expected. To the upside, resistance will likely be met around the 1.2800 handle.
USDCNH closed higher overnight following USD strength, although for the week the pair has hardly budged.
The currency pair is trading near its 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.
USDJPY neared a 2-month high and key level Friday, after the release of an economic report which showed March inflation slowed, leading traders to realise the BOJ’s 2% inflation target is beginning to look loftier-than-expected.
A break out above 108 may lead the pair to its next resistance of 110.50 over the coming weeks.
GBPUSD tanked further Friday to 1.4069, its lowest since April 6, on the back of comments from BOE Governor Mark Carney. Carney adopted a dovish tone, even though he spoke about higher rates in the years ahead, as he warned that Brexit uncertainty could delay the process of rate hikes.