December 7, 2017

Daily Observations:

Asian equities bounced back to stem their longest losing streak in more than two years as the recent rout in global stocks abated. Energy shares were the big decliners after crude slumped past $56/bbl. The Aussie and sterling both weakened, due to poorer-than-expected GDP data and Brexit worries, respectively. Gold meanwhile is threatening to break below the key support of $1,260/Oz.

 

Overnight Recap:

US stocks ended the session little changed, putting the brakes on a global selloff, with tech shares gaining and energy firms tumbling along with oil prices. The Stoxx Europe 600 Index nearly erased losses of as much as 1% after the Nikkei posted its worst rout in 9 months. Treasuries ticked higher with the dollar as investors’ focus turned to efforts to avert a US government shutdown later this week. Traders are also trying to stay on top of US tax reform developments.

 

US Government Shutdown Looms:

House Republicans are moving ahead with a plan to avoid a Saturday US government shutdown by passing a two-week stopgap spending measure, overriding conservative GOP lawmakers who were pressing for a longer extension to get more leverage over Democrats and the Senate.

 

Bank of Canada Holds:

The Bank of Canada kept borrowing costs on hold at its last interest rate decision of 2017 and reiterated it will be “cautious” with future moves, indicating it’s in no rush to cool an economy that is very close to capacity. Policy makers left the benchmark overnight rate at 1%, as market expected. It’s the second straight hold after consecutive hikes in July and September.

According to a Bloomberg report, even as the central bank acknowledges that borrowing costs will eventually need to rise, it is handling the normalization of rates very carefully, wary of triggering another downturn. One argument, repeated Wednesday, is that geopolitical uncertainties remain around US trade policies.

 

Brexit Talks Hit a Wall:

Prime Minister Theresa May’s chances of getting a Brexit breakthrough this week receded as the Northern Irish ally that props up her government continued to resist a deal amid rumblings of a Cabinet rebellion. The Democratic Unionist Party thinks it will be challenging to get a deal done this week as it’s demanding significant changes to a text on what the Irish border should look like after Brexit, according to a person familiar with the party’s thinking. That risks pushing May beyond the deadline set by the European Union if it wants divorce talks to move on to trade by year-end.

May has until Friday to come up with proposals that will satisfy the EU. If there’s no deal this month the chances of a messy Brexit increase and hardliners in the UK will step up their calls to walk away

 

Middle East Geopolitics:

President Donald Trump on Wednesday recognized Jerusalem as Israel’s capital and announced he would begin moving the US embassy there, despite warnings from leaders across the globe that the move would undermine peace efforts and spark violence.

Israeli Prime Minister Benjamin Netanyahu welcomed the move, saying in a video posted to YouTube that his country is “profoundly grateful” for Trump’s “courageous” and “just” action. But British Prime Minister Theresa May criticized the move in a written statement issued by her government, calling the step “unhelpful in terms of prospects for peace in the region.”

Leaders from France to Saudi Arabia warned ahead of Trump’s declaration that the announcement would risk fresh violence and could bury hopes for resolving the Israeli-Palestinian conflict.

Recognizing Jerusalem as Israel’s capital is provocative because the eastern sector of the city, home to some of the holiest ancient sites in Judaism, Christianity and Islam, is also claimed by Palestinians as the capital of a future state.

 

Brexit Deadline Looms:

Euro-skeptics including members of UK Prime Minister Theresa May’s own Conservative party set out new “red lines” for the negotiations ahead of a lunch meeting she’ll have on Monday with European Commission President Jean-Claude Juncker. In two further blows, the government’s social mobility advisers quit en masse, saying May has failed to improve the lives of the poorest people in Britain, while her deputy Damian Green is facing fresh calls to resign over allegations of sexual misconduct.

The storm of trouble swirling around May’s leadership intensified just as Brexit negotiations reach their most sensitive stage. The EU set her a deadline of Monday to make a better offer on the terms of the divorce that are currently stuck – including the so-called exit bill, legal protection for the rights of EU nationals, and avoiding a new hard border between the UK and Ireland.

If she fails to persuade the other 27 EU countries that her new offer on all three issues is acceptable, May will not be allowed to begin negotiating the new free-trade deal she wants with the EU, or the transition period that businesses crave. Both sides want talks to move on from the divorce terms to this second phase focusing on future relations at a summit of European leaders on Dec. 14. Without a separation deal by the end of the year, British officials fear the talks will collapse.

 

Australian GDP:

Australia’s economy grew slower than forecast as household spending rose at the weakest pace since the 2008 financial crisis, reinforcing the likelihood of the central bank keeping interest rates on hold for longer. 3Q GDP grew 0.6% quarter-on-quarter and 2.8% year-on-year, less than the median estimates of 0.7% and 3.0% respectively. Household spending rose 0.1%, its weakest gain since 4Q 2008.

The data reinforce a divide between an increasingly confident business community that’s hiring and investing and more pessimistic consumers saddled with record debt as reflected in their weak spending and lower savings. Given that consumption accounts for more than half of gross domestic product, the RBA is unlikely to add to households’ woes by lifting borrowing costs from the current record-low 1.5%.

 

Crypto-Crazy Korea:

As bitcoin surges past $13,000, many South Koreans have embraced cryptocurrencies, prompting the nation’s prime minister to warn that they could corrupt the nation’s youth. The craze has spread so far that bitcoin is trading at a premium of about 16% over prevailing international rates in Korea, which has emerged as a sort of ground zero for the global crypto-mania. While neighbouring Japan hosts more transactions by some measures, Korea punches far above its weight: in the 24-hour period through Wednesday evening in Seoul, about 21% of the world’s bitcoin trades on fee-charging venues involved the Korean won, according to Coinmarketcap.com. Worry is growing among the nation’s policy makers. The country’s top financial watchdog, which briefly roiled cryptocurrency markets with its ban on initial coin offerings in September, said this week that it has “grave concerns” about overheated speculation and has formed a task force with other government bodies to increase supervision.

 

Singapore’s Aging Population Worry:

According to a UOB report, in 2018 the share of the population that’s 65 years and older will match those younger than 15 for the first time. As the elderly population starts to crowd out the youth, the “demographic time bomb” may mean changes to taxes, immigration rules, and social services. At this rate, seniors in Singapore’s population will make up more than double the share of the youngest residents in 2030. With already the oldest population in the Association of Southeast Asian Nations, the Singapore of 2030 will probably look a lot like the demographics-embattled Japan of 2016, the report showed.

 

Weekly Thematic News:

 

Smart Real Estate Singapore:

A Bloomberg report Wednesday stated that Singapore developers may extend their share rally into 2018 on a reviving home market, according to money managers and analysts, who say the central bank’s warning on a potential oversupply may not play out for years. After double-digit gains this year, Morgan Stanley sees a 42% jump in shares of CapitaLand Ltd., the nation’s largest developer, and a 24 percent increase in City Developments Ltd., the second-biggest, in the next 12 months. Property companies such as City Developments and UOL Group Ltd. are among the top performers in Singapore in 2017, with developers collectively on track for their best annual performance in 5 years.

Signs of a revival in Singapore’s property market include record prices paid for land deals, the first increase in home prices in four years, and the first gain in office rents in 2-1/2 years. The buoyant sentiment was tempered last week by the Monetary Authority of Singapore, which flagged the risk of rising vacancies amid slowing population growth.

Investors looking to invest in the local real estate sector can buy into the Smart Real Estate Singapore portfolio on iAdvisor, which has returned a healthy 25.6% from a year ago and provides a dividend yield of 5.1% as of Wednesday.

 

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.

 

FX Updates:

USD/SGD:

Spot: 1.3485

USDSGD continues to be capped below the 1.3500 handle for most of the past week. A potentially stronger US dollar as of late is expected to push the pair above 1.3500 over the near term.

Having broken above its downward trend channel since the beginning of the year, the currency pair’s technical bias continues to remain to the upside, with the key support residing at its year-to-date low of 1.3346.

 

AUD/USD:

Spot: 0.7553

AUDUSD slumped to near 5-month lows following yesterday’s poorer-than-expected GDP data, which led to the belief that the central bank will continue to keep its target rate at a current record low of 1.50%.

The 0.7500 will be a key psychological level. A break below could trigger a further selloff in the Australian dollar, driving the currency pair lower to 0.7300.

 

USD/CAD:

Spot: 1.2799

USDCAD rebounded sharply after dovish comments from the Bank of Canada and overnight weakness in crude oil prices weighed on the Canadian dollar. A retest of 1.2900 is likely over the near term.

 

USD/CNH:

Spot: 6.6172

USDCNH continues to trade sideways, remaining little changed this week. The pair has been mostly trading within the 6.5700 – 6.6700 range since end September, and is expected to continue that trend through year-end.

The key support lies at 6.5500; a decline below it may pave the way for more downside towards the 2017-low of 6.4436.

 

USD/JPY:

Spot: 112.38

USDJPY rebounded off the 112 handle overnight, creating more distance between itself and the 200-day moving average at 111.67. A better-than-expected US payroll data this Friday could drive the FX pair higher towards the week-high of 113.

 

GBP/USD:

Spot: 1.3383

GBPUSD declined to its lowest in a week as UK PM May reportedly faced rebellion from all sides just days before a key meeting with the European Union. A breakout above the key 1.3500 resistance rests primarily on whether the border issue between May’s government and its Northern Irish allied party can be resolved by the end of this week. Failing which, a decline back to 1.3000 could be a possible scenario.