Issue#: 532/2019

Spot values at a glance:







Daily Observations:

Asian stocks were mostly higher Thursday as investors mulled China’s daily currency fixing, which was stronger than expected, and following a late recovery in US equities overnight. Treasuries pared gains and the yuan climbed. South Korean stocks outperformed amid signs of easing tensions with Japan. China’s Shanghai Composite rose from the lowest level since February and gains in the yuan helped lift the Australian dollar. 


Hong Kong Protests Widens, Hits Businesses:

The economic fallout from the political protests in Hong Kong is broadening, with Cathay Pacific Airways Ltd. being the latest to say its business is taking a hit. Ticket sales dipped as fewer people took Cathay flights into Hong Kong in July, and the demonstrations are hurting future bookings as well, the flag carrier of Asia’s financial hub said on Wednesday.

The toll on commerce is rising as the unrest turns increasingly violent. What started as a protest 2 months ago over a contentious law has morphed into a movement against China’s grip on the city. That’s dealing a blow to a growing list of businesses, from local retailers and hotels to foreign watchmakers and even Walt Disney Co.

It’s not just the threat from clashes between police and protesters that’s hurting business. A general strike on Aug. 5 led to traffic chaos, violence, tear gas and flight cancellations in the most disruptive day since the protests started. About a day later, rumors about triad gang violence at North Point on Hong Kong Island forced shops nearby, including Starbucks, to shut early. Even the most popular shopping areas such as Causeway Bay were quieter than usual.

InterContinental Hotels Group Plc said this week that first-half revenue fell marginally in Hong Kong amid the unrest. Macau’s casino operators reported an unexpected drop in revenue in July. The world’s biggest gaming hub, Macau, is a popular day trip from Hong Kong. Richemont, the owner of Cartier, last month reported a surprise drop in revenue from its watch business. Richemont echoed Swatch Group AG in saying that protests in Hong Kong weighed on sales.


Trump Lambasts Fed:

President Donald Trump stepped up his relentless assault on the Federal Reserve in a series of Wednesday morning tweets that renewed his demand for “bigger and faster” interest-rate cuts. “Incompetence is a terrible thing to watch, especially when things could be taken care of sooo easily. We will WIN anyway,” he said. “It would be much easier if the Fed understood, which they don’t, that we are competing against other countries, all of whom want to do well at our expense!”

He also called attention to 2 central banks that cut rates on Wednesday – India, New Zealand and Thailand, though he didn’t name them in the tweet, and said, “Our problem is not China – We are stronger than ever” before returning to his familiar complaint against the US central bank.

Concerns over an escalating trade war between the US and China have shaken financial markets and increased bets the Fed will follow a quarter-point cut it made last week with further easing in coming months. Chairman Jerome Powell called the cut a “mid-cycle adjustment” rather than the start of a long campaign of easing, though he later clarified that he did not mean to imply that meant only the one move.


30-Year Treasury Yield Approaches All-Time Low:

U.S. 30-year yields are closing in on their lowest level ever as concern grows about the impact of the escalating trade war on global economic growth and as policy makers around the world step in to provide support.

Dovish actions by central banks from New Zealand to India on Wednesday added fuel to the rally in bonds, dragging the yield on 30-year US debt down by as much as 11 basis points to 2.1216%. That’s close to the all-time low of 2.0882% reached in July 2016.

In Germany, the gap between 2-year and 30-year bond yields was compressed to levels unseen since the financial crisis more than a decade ago.

In recent weeks, investors have faced off against a barrage of record-low yields as they have flocked to the remaining corners of the market where they can still eke out a positive return. Germany’s entire curve is already fully below 0%, while even the 10-year bonds of some of the riskiest nations in the euro area, such as Spain and Portugal, are getting precariously close to negative territory.


Pakistan-India Tensions Intensify:

Pakistan downgraded diplomatic relations and suspended bilateral trade with India after New Delhi revoked seven decades of autonomy for the disputed Muslim-majority state of Kashmir.

Prime Minister Imran Khan’s government announced Wednesday a series of measures to oppose what it called “unilateral and illegal actions” by India. He also said Pakistan will take the matter to the United Nations Security Council and ensure the army remains vigilant. India’s foreign ministry didn’t respond to a request for comment.

There may be relatively little at stake commercially: Bilateral trade between the two countries amounted to about $2.5 billion in 2018, roughly 3% of Pakistan’s total trade and about 0.3% that of India.

Politically and strategically, however, every escalation is serious. Prime Minister Narendra Modi’s decision on Kashmir fulfilled a campaign promise made to his Hindu base, which opposed special treatment for the region. The state, officially known as Jammu and Kashmir, has been the main flashpoint between the 2 nuclear powers, which have fought 3 wars since the British left the subcontinent in 1947.


US Rushing to Finalize New China Tariffs:

The Trump administration is scrambling to finalize a list of $300 billion in Chinese imports it plans to hit with tariffs in a few weeks’ time, as US companies make a last-ditch appeal to be spared from the latest round of duties.

President Donald Trump’s announcement last week on adding a 10% tariff as of Sept. 1 to virtually every Chinese import that’s not yet subject to punitive duties took US Trade Representative Robert Lighthizer by surprise, people familiar with the discussions said. Lighthizer and his staff are now under pressure to revise an initial list targeting more than 3,800 Chinese product lines based on issues raised during a public comment period and hearings.

The USTR is planning to publish the final list this week or early next, the people said. In that meantime, companies are making a last-ditch attempt at convincing the Trump administration not to impose duties or to drop items they import from the tariff list.

In a meeting shortly before the president announced the new duties, Lighthizer argued against the new tariffs. He instead urged patience to allow more time for a tariff increase in June to 25% from 10% on an earlier batch of $200 billion worth of Chinese imports to inflict pain on the Chinese economy, the people said.

A USTR spokesman disputed that account, and said the agency was following the same legal process as it had in previous tariff rounds. Trump decides when the tariffs will go into effect and USTR will publish the final list before the effective date, the spokesman said. Still, companies are complaining about the lack of certainty for their business decisions and say a couple weeks’ notice isn’t enough time.


Australian Property Market Rebound Spurred by Rate Cut Bets:

After a 2-year slide, Australian house prices look to have bottomed out, sending buyers flocking back to the market. The sudden turnaround in sentiment can be traced to 3 factors: the central bank’s back-to-back interest rate cuts which have pushed mortgage rates to record lows; the regulator’s loosening of mortgage stress tests; and the surprise re-election of Scott Morrison’s government in May, which killed off the opposition Labor party’s plans to wind back tax breaks for property investors.

The nascent rebound is a rare bright spot in an otherwise sluggish economy, which has been beset by stagnant wages and a sharp slowdown in growth. Rising home prices may help underpin consumer spending by making homeowners feel wealthier.

Dwelling values in Sydney, the nation’s largest property market, have risen in each of the past two months, according to CoreLogic Inc. That ended a near two-year slide that saw prices tumble 15% from their July 2017 peak, and foreshortened a slump economists had forecast to extend into next year. Prices also rose in Melbourne, Brisbane, Hobart and Darwin last month.


Singapore REITs Look Set to Benefit From Falling Rate Environment:

According to a Bloomberg report, Singapore REITs tend to benefit from a low-yield environment on 2 fronts: Not only do operating costs fall as financing becomes cheaper, but the dividend yield REITs offer becomes more attractive.

Singapore REITs tend to have higher leverage than most, so their interest expense is usually larger than REITs in other countries. Companies in the Singapore REIT index have a net debt to EBITDA ratio of about 8.2, versus 6.9 in the US. The city state’s REIT dividend yield of 4.55% towers over the Singapore 10-year bond rate of 1.8%. That premium is the most since February.

Investors looking to buy into the REIT sector should consider the Smart Real Estate Singapore portfolio on iAdvisor®, which returned 18.2% over the past 12 months, outperforming the Straits Times REIT Index’s 8.2% gain over the same period.



Sources: Bloomberg, iAdvisor



FX Updates:


Spot: 1.3813

USDSGD reached its key resistance level at 1.3973 this week, following a weaker Singapore dollar amid rising US-China trade war tensions. A pullback to 1.3725 is possible over the short term; however the pair is likely to retest its upper bound or the 1.3900 region again before long.

According to Citigroup, the Singapore dollar, in addition to the yen and Australian dollar, are the prime targets in Asia Pacific should the US decide to intervene in the currency market. The yen has historically been a target for US intervention, while the Singapore and Australian dollars could be also bought because of their liquidity and accessibility.



Spot: 0.6774

AUDUSD fell to its lowest in a decade yesterday, briefly breaching below 0.6700, on speculation the central bank will follow its New Zealand counterpart in delivering a bigger-than-expected interest-rate cut. The pair has since pared losses today, gaining 0.6% to 0.6774 earlier. Momentum remains firmly pointed to the downside, and a revisit of 0.6700 is likely over the coming weeks.



Spot: 1.3281

USDCAD rose to its highest since mid-June amid darkening global economic and geopolitical outlooks. Canadian dollar market watchers will continue to navigate uncertain waters as they await domestic employment data on Friday. USDCAD has since reversed overnight gains following crude oil’s rebound from a 7-month low earlier.



Spot: 7.0707

USDCNH maintained above the key 7.0000 handle, despite the PBOC setting its daily fixing stronger than expected earlier today. The central bank had set its daily reference rate weaker than 7 for the first time since 2008. China’s daily fixing has become a closely watched event this week after a weak reference rate on Monday helped trigger the biggest loss in the yuan since 2015 and spark concern about a global currency war.

China’s fixing is published every trading day at 9:15 a.m., after a group of 14 lenders submit their rates. The yuan is then allowed to move 2% in either direction. The rates are calculated with formulas that take into account factors such as the previous day’s official close at 4:30 p.m, the yuan’s move against a basket of currencies and the moves in other major exchange rates.



Spot: 106.20

USDJPY continues to hold above 106, having recovered from its lows below in each of its past 4 sessions. A short-term rebound back to 107-108 is likely, although the main trend seems to be pointed towards the downside. A break below 106 could pave the way back to 100.



Spot: 1.2171

GBPUSD remains in the 1.2080-1.2210 range, where it has maintained its sideways direction since the start of August. Despite ongoing Brexit uncertainty, a GBPUSD rebound in the coming week is possible, with the previous support-turned-resistance around 1.2400 a likely target.


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UEN: 201419754M

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