Issue#: 541/2020

Spot values at a glance:







Daily Observations:

Asian equities advanced Tuesday after US stocks hit a record high, with most sectors advancing, as investors looked past the potential economic impact of the spreading coronavirus. Shares in Hong Kong, Seoul and Sydney rose with US equity futures. Chinese stocks were little changed. Japanese financial markets are shut for a holiday. Fed Chairman Jerome Powell addresses US lawmakers this week in his semi-annual testimony and markets will be looking for any remarks on the effect of the virus on the economy and monetary policy.


Coronavirus Death Toll Tops 1,000:

The death toll from the coronavirus climbed above 1,000, as the Chinese province at the epicenter of the outbreak reported its highest number of fatalities yet. Hubei province added 103 more deaths, up from 91 a day earlier. At the same time, it also reported the lowest number of new cases since Feb. 1, an encouraging sign as health officials look for the outbreak to peak.

Hubei has removed 2 health officials from their posts, according to state television. Criticism has mounted over China’s transparency and speed in handling the epidemic. President Xi Jinping made his first public appearance after the death of a doctor who became a hero for speaking out about the deadly coronavirus sparked public anger.


More China Stimulus Likely:

According to Bloomberg news, Chinese policy makers will likely roll out more measures to support the economy amid the impact of closures to fight the spread of the coronavirus, though the emphasis still lies on not over-doing it.

Economists from Goldman Sachs Group Inc to UBS Group AG and BNP Paribas SA see more easing steps ahead, including further cuts to central bank funding rates and more tax relief to hard-hit sectors.While officials can act swiftly, they’re still wary of re-inflating debt bubbles or using up ammunition that might be needed should the trade conflict with the US worsen again. Inflation pressure complicates the setting further.

“The authorities will have to consider the after-effect of their policies, which may have pro-cyclical influence in the second half when the economy recovers and adds to the difficulty of debt containment,” said Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered Bank Ltd.

Below are some measures investors should keep a look out for:

  • Liquidity – The addition of more interbank funding is likely via open market operations and the medium-term lending facility later this month, especially toward the end of February when delayed tax payments are due. In addition, as open market operations are mostly for major banks, some economists also expect the PBOC to cut the proportion of deposits banks must hold as reserves. The PBOC has itself hinted that, at the least, reserve cuts aimed at specific sectors are on the way.
  • Lower Rates – Liquidity injections coupled with lower funding costs this month have nudged down interbank rates, with the key 7-day repo rate falling almost 45 basis points. PBOC Deputy Governor Pan Gongsheng has also signaled further cuts to the rate on the PBOC’s medium-term loans.
  • Taxes & Expenditure – While fiscal stimulus may not take a lead role in this round of easing, more spending on infrastructure is still likely, especially on health-related areas. The authorities have delayed or partially waived taxes and social security fees for affected businesses, as well as encouraging private landlords to exempt rents. Some of those measures will likely continue after the virus is brought under control. Large-scale tax cuts are less likely, as public funds were stretched even before the virus hit. That said, the actual deficit came in lower than projected last year, meaning that in theory there’s some room to use that borrowing in 2020 to combat the virus impact.
  • Bazooka Tools – For some major fiscal steps, including a bigger deficit, the government may technically need approval from the National People’s Congress, the rubber-stamp legislature that is still set to meet in March. The outlook for more powerful monetary tools is complicated by the ongoing reform of the policy framework. The bluntest instrument, the one-year lending rate which could slash borrowing costs across the economy, is being scrapped in favor of a more market-led system.

The stimulus area where officials tread most carefully is the property market, given the history of price inflation. Even so, according to Goldman Sachs, if the virus is not brought under control by May and travel restrictions persist into the second quarter, the government may be tempted to ease controls there as they did in 2015 and 2016.


Yield Curve Threatens to Invert…Again:

The US yield curve is flirting with another broad-based inversion, reigniting Wall Street fears over the fate of the American economy. A growing chorus of voices is being swayed by another notion: the signal might say more about the state of the world than the US business cycle.

In a Bloomberg news report, Treasuries now make up more than half of the world’s haven assets, double the share they accounted for during the global financial crisis, according to Eurizon SLJ Capital. That complicates matters when the spread between long- and short-term yields inverts: what used to be a reliable American recession indicator is instead an barometer of investors diving for cover worldwide.

It’s a narrative that makes a lot of sense as the threat from the coronavirus continues to grow, and it revives the frantic debate from last year about how much predictive power the yield curve actually has left. After a respite early last week, the curve is once again flattening, with the spread between yields on three-month and 10-year Treasuries inverting once more on Monday. This followed an earlier inversion starting Jan. 30 that was caused by growing angst about the coronavirus and an equity sell-off.

Global hunger for US bonds helps explain American exceptionalism in growth, currency markets and stocks, according to Stephen Jen, chief executive officer at Eurizon SLJ. He predicts that by 2022, US government debt will account for two-thirds of the world’s pool of haven bonds thanks to large issuance and quantitative easing by other central banks. His calculations are based on the outstanding amount of government debt in the US, Japan, and the 3 largest European economies, subtracting the portion that is owned by central banks. “The US might, perversely, thrive because of troubles elsewhere,” Jen said. “When US Treasury yields fall due to shocks outside of the US that may or may not have an impact on the US economy, it often provides added stimulus.”

It’s a view Federal Reserve officials are playing close attention to as global risks from the virus mount. In an interview with Bloomberg TV, Fed Vice Chairman Richard Clarida played down the inversion and said the negative spread is “really driven not so much by an outlook for the US economy, but globally.” When there’s uncertainty money flows to America, he said, so current yield moves don’t reflect the US outlook.


Bernie Sanders Top Polls as Biden Loses Steam:

The Democratic presidential race took on a new shape a day before the New Hampshire primary, as a national poll showed Bernie Sanders overtaking Joe Biden in first place and Michael Bloomberg surging to third place on a wave of advertising. Biden’s support has plummeted since the previous Quinnipiac poll on Jan. 28, when he held the lead at 26%. In that poll, Sanders was second with 21% and Bloomberg had 8%.

In the first national survey since the Iowa caucuses ended with Sanders and Pete Buttigieg vying for the top spot, the Vermont senator had 25% support, topping the Quinnipiac University poll for the first time. He was followed by Biden at 17% and the former New York City mayor at 15%, according to the poll released on Monday. Sanders is also leading in New Hampshire polls ahead of the state’s primary on Tuesday.

Bloomberg’s surge comes after his campaign spent more than $300 million on advertising around the country, including in expensive media markets in states like California and Texas that vote in the March 3 Super Tuesday nominating contests.

His strong showing gives him two of the four qualifying polls he would need to participate in the Las Vegas Democratic debate on Feb. 19. Candidates need to show 10% in four qualifying national polls or 12% in two polls taken in Nevada or South Carolina by Feb. 18. Bloomberg, who entered the race in late November, scored 10% in a Fox News national poll in January.

Monday’s poll showed Biden’s support cratering among black voters, from 49% on Jan. 28 to 27% in the latest poll, a drop of 22 percentage points. Biden has been counting on support from African American voters and has staked his candidacy on doing well in South Carolina, where about 60% of Democratic voters are black. Bloomberg appeared to be the biggest beneficiary of Biden’s fall, jumping 15 percentage points among black voters, from 7% to 22% over the same time period. None of the other candidates saw their numbers with African Americans change dramatically.

Massachusetts Senator Elizabeth Warren came in fourth in the February poll with 14%, followed by Buttigieg at 10%. The former mayor of South Bend, Indiana, emerged from the Feb. 3 Iowa caucuses with the most delegates and has seen his numbers rise in New Hampshire before that state votes Tuesday, but this poll doesn’t show that support spreading nationally. Minnesota Senator Amy Klobuchar came in at 4%.


Singapore Tourism Slump Expected:

Singapore could see a 25% to 30% decline in tourist arrivals and spending this year because of the coronavirus outbreak, as the industry braces for a worse impact than the 2003 SARS pandemic, the city’s tourism chief said. The city-state is losing about 18,000 to 20,000 tourists a day, and the figures could plummet further if the situation persists for longer, Keith Tan, chief executive of Singapore Tourism Board, said in an interview with Bloomberg TV.

China accounts for about 20% of Singapore’s tourism intake, the biggest source of visitors ahead of Indonesia and India. China’s ban on outbound tour groups and Singapore’s move to bar Chinese nationals from entering has led to an “evaporation” of a key source of revenue, Tan said. “We have over 1,600 tourist guides who guide in Mandarin and their livelihoods have also evaporated because many of them are freelancers,” said Tan. Tourists from other countries are also deferring visits to Singapore and other parts of Asia amid the outbreak.

Singapore isn’t the only nation reeling from the coronavirus. Across the globe, hotels, casinos, airlines and retailers who have come to rely on Chinese tourists have been hit. About 163 million Chinese tourists made overseas trips in 2018, accounting for more than 30% of travel spending worldwide.

For the city-state, though, its 2020 tourism projections stand in stark contrast to last year’s record arrivals of 19.1 million. Tourism receipts rose to S$27.1 billion in 2019 based on preliminary estimates, from S$26.9 billion the year before. But in a report last week, DBS Group Holdings Ltd. said it sees a decline of 1 million tourists, equal to about a S$1 billion loss in spending, for every 3 months the travel bans are in place. The lower arrivals will cut about 0.5% off Singapore’s full-year GDP growth, the bank added.



Sources: Bloomberg

FX Updates:


Spot: 1.3877

USDSGD retreated from a 5-month high today, extending a decline after sliding back below 1.3900 yesterday. The Singapore dollar’s nominal effective exchange rate (NEER) is near the lowest level in more than 3 years as deepening concern over the coronavirus fans speculation of monetary easing as early as April.

According to Standard Chartered model, the NEER was 0.8% below the middle of MAS’s policy band earlier this week, after falling to -0.9% last Friday, the lowest since November 2016.



Spot: 0.6705

AUDUSD continues to fluctuate around the key support level of 0.6670. The pair seems to be holding up well despite continued coronavirus fears and a poorer-than-expected NAB business confidence reading earlier today. A break below the key 0.6670 level is likely to trigger a rapid move to the 0.6500 handle.



Spot: 1.3303

USDCAD rose to a fresh 2020-high overnight as crude oil future prices recovered from its lows and hovered around $50/bbl. The outlook for oil prices however remains depressed, following lowered demands from the world’s largest oil importer, China, amid the coronavirus outbreak. Investors’ focus will now shift to Fed Chair Powell’s testimony later tonight.



Spot: 6.9787

USDCNH remained capped at the 7.000 handle, retreating back below for the second time in a week yesterday. Latest efforts from the PBOC to infuse 100 billion Chinese yuan of liquidity to bring the total to 380 billion, as well as the reopening of factories in some parts of the mainland helped to maintain downside pressure on the FX pair.



Spot: 109.88

USDJPY nears its key 110 level, following recent upbeat US economic data which has resulted in a stronger USD. How the currency pair reacts at this level will be key in providing clues in its future direction. A break above 110 could lead to more upside, possibly to 112. Conversely, a failure to do so could result in a retreat back to 108.



Spot: 1.2916

GBPUSD is currently trading around its 100-day moving average of 1.2905, after falling yesterday to its lowest in 2 months. The pound has faced increased selling pressure last week as investors trimmed long positions to the lowest levels so far this year as expected tough trade negotiations between the UK and EU over the coming months dampen demand. 1.2800 is a potential support buying level.

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UEN: 201419754M

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