Issue#: 428/2017

Spot values at a glance:







Daily Observations:

Asian stocks built on the strong start to this year and headed for a fresh record high Monday amid optimism in global growth and after US and European equities rose on Friday. Both the yen and euro have been lifted by bets the Japanese and European central banks this year will scale back their monetary stimulus, while the US dollar continues to falter despite improving core inflation and retail sales numbers.


US Core Inflation Picks Up, Retail Sales Revised Higher:

Core CPI in December unexpectedly picked up amid increased housing costs, reinforcing the outlook for the Fed to raise interest rates several times in 2018. Core prices gained 1.8% from a year ago and 0.3% from a month ago, beating the median estimates of 1.7% and 0.2% respectively, and accelerating from November’s 1.7% and 0.1% gains.

A separate Commerce Department report on Friday showed US retail sales rose in December, by 0.4% month-on-month, and November’s gain was revised upward, from 0.8% to 0.9%, indicating a robust holiday-shopping season; analysts had predicted a 0.5% increase.


US Government Shutdown Possible:

The risk of a US government shutdown by the end of the week was heightened by President Donald Trump declaring a bipartisan immigration agreement “probably dead.” Trump appeared ready to consider a deal with Democrats and moderate Republicans until a hard-right flank led by White House senior adviser Stephen Miller and Arkansas Senator Tom Cotton pulled him back. Democrats and Republicans spent the weekend quarrelling over whether the president had described Haiti, El Salvador and African nations as “shithole countries,” remarks that damaged prospects for a deal. The unravelling of the potential compromise further stokes concerns about Trump’s unpredictability as a negotiator and his impulse to rapidly reverse course.


Euro Boosted by Merkel Talks:

Chancellor Angela Merkel reached a preliminary accord with the Social Democrats to end Germany’s political gridlock, moving closer to a fourth term and defying domestic critics who say her time is running out. The next hurdles are a key vote by her reluctant SPD partners later this month and then finalizing the deal in another round of talks. After a marathon of negotiations over the weekend, Merkel’s Christian Democratic Union, her Bavarian sister party and the Social Democrats hammered out an agreement that outlines a possible “grand coalition.”

The euro currency gained to a 3-year high against the US dollar, adding to gains last week that followed minutes of the ECB’s December meeting showing policy makers are considering a hawkish shift.


China Vows to Toughen Banking Rules:

China’s banking regulator pledged to continue its crackdown on malpractice in the $38 trillion industry in 2018, vowing to tackle everything from poor corporate governance and violation of lending policies to cross-holdings of risky financial products.

The China Banking Regulatory Commission unveiled its regulatory priorities for the year in a statement on Saturday. They include:

  • Inspecting the funding source of banks’ shareholders and ensuring they have obtained their stakes in a regular manner.
  • Examining banks’ compliance with rules restricting loans to real estate developers, local governments, industries burdened by overcapacity, and some home buyers.
  • Looking into banks’ interbank activities and wealth management businesses.


Mas Chief Expects Singapore to Grow 2-4%:

Singapore’s economic recovery is broadening out in the city state, but there are still “real challenges” in the labor market, central bank Managing Director Ravi Menon said. Sustainable economic growth is estimated at 2% to 4%, Menon told delegates at the UBS Wealth Insights Conference Monday in Singapore. Manufacturing is resilient and financial services are “doing well,” he said.

While he was optimistic about the outlook, with even a slowdown in China in 2018 not sharp enough to wreck the gains, he said 3 risks threaten to derail the positive momentum: inflation, trade protectionism and financial instability.


Singapore May Raise Taxes:

According to Bloomberg news, speculation is buzzing that the Singapore government will raise the goods and services tax in its Feb. 19 budget rollout, although GST probably won’t be the whole story.

Authorities have several other options to increase taxes, or at least signal that they’re needed in the coming years, as the city state grapples with rising health and retirement costs as the population ages rapidly.

According to the news article, other areas which might undergo tax reform include:

  1. E-commerce.
    • Online shoppers in Singapore generally aren’t taxed for their purchases if they don’t exceed S$400, Indranee Rajah, senior minister of state for law and finance, said in a November interview. Given how quickly online vendors are changing the way people shop, such a tax change should have been achieved “probably yesterday,” she said.
  2. Estate tax
    • Singapore removed the tax on assets for people who died after Feb. 15, 2008, and it’s possible the government may seek to reinstate the estate duty at some point, said Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. in Singapore. The levy fits the government’s goal of broadening the tax base and ensuring that the fees are equitable.
  3. Personal income & corporate taxes
    • Personal and corporate tax rates in Singapore are among the lowest in the world, and there may be room to adjust those without threatening the city state’s competitiveness.
  4. Virtual currencies
    • Ernst & Young LLP has stated that IRAS needs to address whether the currencies be treated as a commodity for tax purposes, or as a commodity derivative, “given the proposed statutory definition that it is a digital representation of value where the underlying asset is a virtual commodity”.


FX Updates:


Spot: 1.3226

USDSGD continues to fall, declining to a fresh 2-1/2 year low of 1.3219 earlier today amid fresh USD weakness.

The SGD has been trading nearer towards the stronger end of its trade weighted basket for several months, with a modest tightening at the April MAS meeting expected.

The key support of 1.3150 is nearing and should limit further declines in the currency pair over the medium term. On a longer-term basis, 1.2830 represents a significant level, having been a past resistance in 2013 and 2014.



Spot: 0.7941

AUDUSD ascended to a fresh 3-month high Monday, and looks poise to continue its recent bullish rise towards 0.8000. The near-3 year high of 0.8125 represents the next key resistance point. The currency pair has maintained its upward trend channel since end-2015 and has just recently closed above its 200-week moving average for only the third time since 2013.

According to Commonwealth Bank, the Aussie may outperform most currencies this week should Chinese GDP and an Australian jobs report turn out better than expected.

A break above 0.8125 would signify a shift in long-term trend to the upside.



Spot: 1.2455

USDCAD lingered below 1.2500 Monday, as investors shift their attention to the Bank of Canada’s policy meeting this Wednesday. The central bank is widely expected to raise rates for the third time since last July despite recent uncertainty regarding Nafta.

The trend for USDCAD remains to the downside, with the 1.2000 support likely to be retested again over the medium term.



Spot: 6.4309

USDCNH fell to 6.4300 earlier today, its lowest in more than 2-years, after the PBOC raised the daily reference rate by the most in 3 months and as USD weakness persisted. The currency pair last week closed below its 200-week average for the second consecutive week – the first time it has done so since July 2015.



Spot: 110.75

The yen rose to a 4-month high against the dollar on short-covering after BOJ Governor Kuroda said inflation is expected to reach the 2% target and the economy is expanding moderately.

The tipping point for USDJPY lies at 110; a break below it would signify a breakout off the 2-year long triangle consolidation for the currency pair, and may potentially lead to the yen strengthening to 107.50 against the greenback.



Spot: 1.3738

GBPUSD soared to1.3748 – a post-Brexit referendum high, as the sterling pound was buoyed by a media report that said Spanish and Dutch governments have agreed to seek a softer Brexit deal; this was later denied by the Dutch Finance Ministry though. The psychological 1.4000 is next in line to be tested.


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UEN: 201419754M

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