Spot values at a glance:
Japanese shares and American equity futures edged up alongside Treasury yields following remarks out of both the US and China that progress is being made in trade talks. Asian trading volumes were muted, with China and Hong Kong shut for a holiday. Investors will now turn to the latest read on the US economy later tonight with details on the labor market and clues on future Fed rate hikes.
Progress in US-China Dispute Talked Up:
China and the US claimed progress in talks to end their trade war, with President Xi Jinping pushing for a rapid conclusion and President Donald Trump talking up prospects for a “monumental” agreement.
Through a message passed to Trump via Vice Premier Liu He, Xi called for an early conclusion to negotiations and said that strategic leadership is needed to ensure healthy and stable US-China relations. Liu, who took part in talks this week in Washington, himself said a “new consensus” had emerged, according to the Xinhua News Agency Friday morning.
Trump said any trade deal with China is probably still weeks away, though both sides are making progress on an accord that could be “very monumental”. “We have a ways to go,” Trump told reporters at a meeting Thursday with Liu at the White House. “We are rounding the turn.”
Liu met with the president after 2 days of talks between Chinese and American trade negotiators in Washington. Trump didn’t announce a summit with Xi, a meeting Trump has said is critical to finalizing an agreement. A month ago, Trump was touting the idea of a “signing summit” with Xi, with aides suggesting the meeting could take place at Trump’s Mar-a-Lago resort in Florida.
Drafts of an agreement to end a nearly yearlong trade war would give Beijing until 2025 to meet commitments on commodity purchases and allow American companies to wholly own enterprises in the Asian nation, according to people familiar with the talks. Those would be binding pledges that could trigger US retaliation if unfulfilled, according to the people, who asked not to be identified because the talks are private. Other non-binding promises China has offered to implement by 2029 wouldn’t be tied to potential US retaliation, they said, without elaborating.
China to Regulate P2P Sector:
China has drafted rules to regulate the nation’s $109 billion peer-to-peer lending sector as part of a plan to clean up the market by 2020, according to a document seen by Bloomberg.
National platforms must have at least 500 million yuan of capital within the next 6 months to continue operating. The firms also need to set aside reserves equivalent to 3% of outstanding loans, as well as a further 6% in case they need to compensate borrowers, according to the proposals.
China’s P2P industry had 733.5 billion yuan of outstanding loans as of March, according to Shanghai-based research firm WDZJ. While a lack of oversight had contributed to the ballooning of the sector, it had come in for special scrutiny under President Xi Jinping’s crackdown on financial risk. Authorities are now trying to shrink the market that spawned the nation’s biggest Ponzi scheme, protests in major cities, and life-altering losses for thousands of savers.
Fed Officials Debate on Hiking Cycle:
Fed officials are pushing back against the notion that the central bank should cut interest rates soon, with several policy makers saying in recent days their next move still may be another hike.
“I would never say never to a cut. But in this point, in my forecast, I don’t foresee it for this year or next year,” Philadelphia Fed President Patrick Harker, who is scheduled to vote next on rate decisions in 2020, said Thursday in Philadelphia. “At this point, we have no need to rush any changes” in the federal funds rate, he said.
The comments come after President Donald Trump said he will nominate Heritage Foundation economist Stephen Moore to fill one of two vacant seats on the 7-member Fed board in Washington. Moore, long an ally of the president, told the New York Times in an interview that he favored cutting rates by as much as a half percentage point, though he’s also said he needs to do more research. His initial call for a rate cut has been echoed by White House National Economic Council Director Larry Kudlow.
Moore’s could-be colleagues at the central bank do not agree. Several policy makers have said in recent days that they still see future rate increases as the most likely outlook, and even those who do not expect an imminent hike are calling for a prolonged pause in which monetary policy remains on hold.
Trump also intends to nominate Herman Cain, the former pizza company executive who ran for the 2012 Republican presidential nomination, for the other vacant governorship, Bloomberg News reported on Thursday. The president is unhappy that the Fed has raised rates. If approved by the Senate, Cain and Moore’s appointments would give him two political loyalists around a decision-making table that is meant to be politically independent and guided by consensus.
Singapore’s Urban Draft Plan:
Singapore’s government released an urban draft plan last month, laying out details of how it aims to go about redeveloping its central business district. Chief among the proposals is increasing the number of residential developments and hotels by encouraging firms to convert existing office space.
One suggestion involves boosting buildings’ so-called plot ratios, the higher the plot ratio, the more subdivisions of floor space that are allowed. These incentives will specifically target older-style buildings around central areas such as Anson Road, Cecil Street, Shenton Way and Tanjong Pagar.
That could prove a boon for some developers, especially those with low debt. They’d be in a prime position to participate in any auctions for land in the CBD, according to Jonathan Koh, an analyst at UOB Kay Hian Pte. His top picks are CapitaLand Ltd. and City Developments Ltd., whose building known as The Arcade is particularly old and in need of restoration.
The conversion of office space into hotel rooms or serviced apartments could also help alleviate the shortage in the hospitality sector with the current pipeline of hotel rooms not expected to meet the predicted rise in tourists.
The draft master plan, under the remit of Singapore’s Minister for National Development, Lawrence Wong, also includes a proposal to move more facilities like storage and utilities underground in order to free up space for living. An increase in the number of green spaces like parks and park connectors is on the agenda too. It’s hoped that in future, more than 90% of households will be within walking distance of a park.
Investors looking to allocate capital into the local real estate sector can buy into the Smart Real Estate Singapore portfolio on iAdvisor, which outperformed the Straits Times REIT Index to return 12.7% over the past 3 months.
Citi Advocates China Equities Over US:
Chinese stocks, already the world’s best performers this year, are still a great bet, especially when weighed against the US, according to Citigroup Inc.
American stocks are now pricing in 2019 profit growth that exceeds consensus expectations, amid a backdrop of negative earnings revisions and weakening economic data momentum, Citigroup strategists including Jeremy Hale wrote in a note Thursday. Conversely, Chinese earnings growth could re-accelerate in the second half, and get a boost from a resolution to the trade war, they said.
The S&P 500 Index has broken below its medium-term uptrend against the Shanghai Composite Index, offering a technical rationale for the trade, in the group’s thinking. Meantime, the US gauge has probably already got all the juice it can get out of the Federal Reserve’s dovish pivot, they concluded.
The call comes after a more than 30% surge in the Shanghai Composite Index this year, about double the 15% gain in the US benchmark.
May’s Talks with Corbyn Might Result in Brexit Deal Referendum:
According to Bloomberg news, Theresa May is in a battle with her own ministers to keep open the possibility of a new referendum, in her search for a Brexit compromise with the UK opposition Labour Party, people familiar with the matter said.
The idea of a confirmatory referendum, in which the public could vote to endorse or reject the exit agreement with the EU, is one of a number of options on the table after Labour leader Jeremy Corbyn held talks with May aimed at thrashing out a new blueprint for Brexit.
May is facing a backlash from pro-Brexit ministers in her government, who regard the idea of putting the question back to the public with horror, according to the people, speaking on condition of anonymity.
These euro-skeptic ministers are dismayed by the premier’s tactics but are waiting to see what agreement comes from the cross-party talks before deciding how to respond, the people said. Britain was due to leave the EU on March 29, but Parliament has repeatedly rejected the separation terms May negotiated during 2 years of talks in Brussels. So far no Plan B option has emerged that can win enough support in the House of Commons, and May is now seeking another delay to the exit day deadline.
USDSGD continues to consolidate around its50-day moving average of 1.3537, with little movement from either currency as investors wait for US employment data later today to gauge the strength of the world’s biggest economy and its implication on Treasury yields. The MAS this month is likely to maintain its stance of modest and gradual appreciation in the nominal effective exchange rate, according to Bloomberg analysts.
AUDUSD maintained nearer its upper bound range over the past 2 weeks, as expectations of an end to the US-China trade war boosted the Australian dollar. Unless clearing AUDUSD’s 50-day moving average, currently at 0.7118 and has been limiting the pair’s upside over the past 2 weeks, happens, chances of a pullback to 0.7100 and 0.7050 can’t be denied.
USDCAD continues to maintain below 1.3400, with the recent strength in crude oil propping up the Canadian dollar. Overnight upbeat Canadian PMI data weighed on the FX pair as well. The overall trend of USDCAD continues to remain to the upside. A big miss on tonight’s US nonfarm may drive the pair towards the 200-day moving average of 1.3195.
USDCNH was little changed Friday, as Trumps said a deal top end the US-China trade war isn’t yet ready but a “monumental” agreement may be announced in about a month.
USDJPY reached a 3-week high, adding 0.4% to 111.80 earlier today as the pair makes another push towards the key 112 resistance. Positive developments on the US-China trade deal front have been a catalyst; in addition, investors will closely watch March month employment details from the US for fresh impulse. A failure to regain above 112 in the near future could signal USDJPY’s exhaustion of its climb from the sub-106 January low.
GBPUSD slipped by as much as 0.7% to 1.3060 last night amid continued Brexit uncertainty. However, a bounce could be on the cards as it seems May is looking to join hands with the opposition Labour party in order to work towards breaking the Brexit deadlock. The alliance is discussing major plans and the UK Times recently reported that the PM May is close to submitting documents for the deadline extension as soon as by Friday-end.