December 4-10, 2017

Issue#: 417/2017

Weekly Macro:

The US dollar looks poised to snap a 3-day losing streak, while US 10yr Treasuries gapped higher earlier today and held above the key 2.40% level. Gold extended losses, and looks likely to test the key $1,260/Oz soon. Crude oil retreated from close to 2-year highs, slipping back below $58/bbl.

 

US Dollar:

  • The Dollar Index gained last week to snap 3 straight weekly declines amid progress on the US tax reform bill. The USD dollar is off to an encouraging start this week, opening above the 93 handle.
  • Following the weekend’s news of the Senate approving the tax bill, dollar optimism is expected to carry over for most part of the coming week. A break above the 94 handle is likely, while the 4-month high of 95.15 remains a likely resistance target as the year draws to a close.
  • With just over a week to go until the Fed meets to confirm a widely-expected final rate hike of the year, a big rise in the Dollar Index seems unlikely though with the rate-hike well and truly priced in since last month. Fed funds futures are pricing in a 96% probability the rate-hike goes through next week.
  • The longer-term direction remains biased to the upside, after the DXY broke out of its downtrend channel towards the end of October.

 

Treasuries:

  • The benchmark 10yr Treasury yield gapped above the 2.40% level early Monday following news over the weekend which reported the Senate narrowly passing the US tax bill.
  • Yield gains were pared though, as White House concerns persist after former national security adviser Michael Flynn pleaded guilty to lying to federal agents and is providing cooperation that promises to take Special Counsel Robert Mueller deep into Trump’s administration.
  • The 10yr yield looks to be supported around the 2.40% handle for the time being, pending future developments on the ongoing Russian probe.

 

Gold:

  • After 2 weekly declines, the fall in spot gold looks to continue Monday with bullion extending its drop below $1,280/Oz after Senate Republicans on Saturday approved a rewrite of the US tax code.
  • The key support lies around the $1,260/Oz level – a failure to hold above it could lead to sell off to $1,200/Oz.
  • Gold investors will be keeping an eye on ongoing developments in probes of alleged Russian meddling in last year’s US presidential election.

 

Oil:

  • Crude oil futures slipped back below $58/bbl Monday, as investors weighed an increase in US oil drilling rigs against OPEC’s promise to extend output cuts through end 2018.
  • OPEC and its allies including Russia had agreed to keep the 1.8million barrels a day of supply cuts in place and beefed up the extension with the inclusion of Nigeria and Libya.
  • Executives from 3 of the biggest independent US drillers said while they won’t increase activity just because prices rise after OPEX agreed to prolong curbs, they will continue to grow. Drillers targeting crude in the US added 2 rigs to 749 in total as of last week, the highest level since late September.

 

Upcoming Key Events:

  • On Monday, euro-area finance ministers discuss the future of the region, vote for a new president, and debate Greece’s bailout review in Brussels.
  • The European Commission College of Commissioners discusses Brexit on Wednesday and will likely make its recommendation on whether sufficient progress has been made to move negotiations onto the future relationship.
  • The US faces a partial government shutdown after money runs out on Dec. 8 if Congress can’t agree on a spending bill by then.
  • US employers probably hired at a robust pace in November as the unemployment rate held at an almost 17-year low. The Labor Department’s jobs report on Friday may also show a bump up in average hourly earnings.
  • On the central bank front, the RBA and BOC are expected hold rates this week.

 

Weekly Thematic News:

 

Cybersecurity:

During China’s World Internet Conference over the weekend, one of China’s most-senior officials called for more aggressive government involvement online to combat terrorism and criminals. Wang Huning, one of seven men on China’s top decision-making body, even called for a global response team to go well beyond its borders. Wang commented that “cybersecurity is a serious challenge”, and that “cybercrimes and cyber terrorism have grown more rampant”.

Just last week, Uber Technologies Inc. said information from 2.7 million UK customers was taken in a 2016 security breach that hit 57 million riders and drivers globally and that the company kept secret from the public and authorities until recently. Uber said hackers got the names, email addresses and cell phone numbers associated with the accounts. The company, which disclosed the breach last week, had paid the hackers $100,000 to delete the data collected.

Amid increasing data and security breach concerns, the cybersecurity space is expected to grow exponentially. Investors can choose to park some money in this increasingly important trend by buying into the Cybersecurity US portfolio on iAdvisor, which has returned 21.6% year-on-year as of Friday.

 

China Online US:

According to Caixin news report last week, Chinese lawmakers are moving closer to finalizing the nation’s first e-commerce law, hoping it will take effect as early as next year. The legislation, which will oversee a wide range of online activities of both buyers and sellers, aims to offer better and more institutionalized protection of consumers amid the exponential growth of online businesses in recent years.

China is the largest online retail market in the world. In 2016, the value of merchandise and services traded on e-commerce platforms reached 26.1 trillion yuan ($3.92 trillion), up 19.8% from a year ago, according to data from the Ministry of Commerce. The e-commerce industry and related sectors are employing 37 million people, the ministry said.

Investors who wish to capitalize on this trend can buy into the China Online US portfolio on iAdvisor, which consists US-listed e-commerce stocks domiciled in China, and has returned a stellar 57.1% year-on-year last Friday.

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