December 8, 2017

Daily Observations:

Asian stocks rose following a broad-based rally in US equities. Investor optimism picked up following news a government shutdown this week has been averted and reports indicating Ireland and Britain were close to a Brexit deal. Gold sank below the $1,260/Oz support ahead of next week’s much-anticipated US rate hike.

Shutdown Averted…For Now:

Congress passed a two-week extension of federal funding that averts a government shutdown this week but defers decisions on spending levels for defense and domestic programs.

The House voted 235 to 193 in favour of the extension Thursday afternoon followed quickly by the Senate, which passed it 81 to 14. Lawmakers now have until Dec. 22 to settle some larger issues on spending and legislation. At the same time they will be rushing to finish work on tax legislation before leaving Washington for the holidays.

Cryptocurrency Craze Continues:

Goldman Sachs plans to clear bitcoin futures contracts for certain clients when the derivatives go live in the coming days, a person with knowledge of the firm’s plans said. The Wall Street bank will act in an agency capacity and won’t serve as a market-maker or build inventory in the derivatives.

That comes just days before CBOE Global Markets, one of the world’s biggest regulated exchanges, begins trading bitcoin futures on Dec. 10. A competing product offered by the CME Group will launch Dec. 18. The cryptocurrency fever that has gripped markets and investors remains divisive amid concerns the products are being offered without the risks of trading virtual currencies fully explored.

Meanwhile, Bill Gross, the billionaire bond manager at Janus Henderson Group, says that while the limited supply of bitcoin may drive up its value for now, it’s an unlikely substitute for currencies or gold in times of economic distress: “Buying a bag of groceries at the grocery store is going to be a little difficult.”

Chinese Companies Pare Debt:

A large group of companies in China are heeding President Xi Jinping’s warnings about the need to rein in leverage in the world’s second-largest economy. Data compiled by Bloomberg shows that listed non-financial enterprises on average are in the best shape in more than a decade when looking at their capacity to make interest payments along with their debt relative to earnings. The improvement has been propelled by supply cuts, rebounding prices and a boom in global trade that have boosted profit growth. The strengthening position of these Chinese companies puts them in better shape to cope with surging bond yields that have been driven by regulators’ efforts to rein in shadow banking.

Japanese Economy Expands:

3Q GDP gained 2.5% quarter-on-quarter, on a seasonally-adjusted annualized basis, beating the median consensus of 1.5% and accelerating from the prior gain of 1.4%. The Japanese economy has grown for seven straight quarters, which now registers as its longest expansion since the mid-1990s.

While export growth is driving corporate profits and business investment, wage gains and consumer spending remain lacklustre. Spending by households on durable goods and services fell during the third quarter from the April-June period. Overall pay rose a slower-than-expected 0.6 percent in October from a year earlier, separate data released on Friday showed.

Brexit Boost:

According to a Bloomberg news report, a flurry of evening diplomatic activity, including calls late on Thursday between UK Prime Minister Theresa May, her Irish counterpart Leo Varadkar and EU Commission President Jean-Claude Juncker, suggest they’re closing in on a deal on the Irish border that will allow Brexit talks to move on to the second phase. If a deal is struck, the European Commission expects May to be in Brussels in the morning, with EU President Donald Tusk due to make a statement on Brexit in the Belgian capital less than an hour later.

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: 1.3520

USDSGD gained to a 2-week high Friday, breaking above the 1.3500 resistance in the process amid strengthening USD.

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: 0.7514

AUDUSD declined to fresh 5-month lows Friday following Wednesday’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: 1.2855

USDCAD’s extended Thursday’s sharp rebound with the currency poised to retest its 5-month high again soon, especially after the Bank of Canada’s dovish statement earlier this week.

USD/CNH:

Spot: 6.6238

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: 113.35

USDJPY gained above 113 Friday amid improving risk sentiment among investors. More positive economic data later tonight in the US (nonfarm payrolls) may drive the pair closer towards the key 115 resistance level.

GBP/USD:

Spot: 1.3474

GBPUSD rallied overnight, surging beyond the 1.3400 handle, buoyed by reports of an imminent post-Brexit Irish border deal.

A breakout above the key 1.3500 resistance may be possible if those reports prove to be true. Failing which, a decline back to 1.3000 could be a possible scenario.