Spot values at a glance:
Asian stocks headed toward fresh historic highs, with Japan’s markets coming back from New Year holidays to see solid gains in the wake of fresh US equity records overnight. The dollar and oil rose, while gold slipped.
Improving Korean Ties:
North Korea contacted authorities in Seoul over a hotline for the first time in about 2 years, paving the way for a thaw during the Winter Olympics despite US President Donald Trump’s fresh taunts at Kim Jong Un. Officials from both countries spoke several times Wednesday to conduct technical checks before agreeing to stop for the day, according to Lee Yeon-du, an official with South Korea’s Unification Ministry.
The South’s President Moon Jae-in has proposed holding talks Jan. 9 at the border village of Panmunjom, which would be the first formal gathering between the two sides since 2015. The move shows further progress after Kim Jong Un called for improved relations with South Korea in a New Year’s Day address.
Fed Minutes Indicate Gradual Hikes to Continue:
According to the most recent minutes of the Fed’s meeting last month, officials debated during the meeting the risks posed to the US economy, with some concerned about low inflation and others pointing o robust growth that was about to get a further boost from tax cuts. Most participants reiterated support for “continuing a gradual approach to raising the target range” for the benchmark policy rate.
Fed officials also discussed several risks that could result in a faster pace of increases. “These risks included the possibility that inflation pressures could build unduly if output expanded well beyond its maximum sustainable level,” owing to fiscal stimulus or “accommodative” financial conditions, according to the minutes.
With regards to the recent concern on the flattening of the yield curve, officials “generally agreed that the current degree of flatness of the yield curve was not unusual by historical standards”, however several participants thought “it would be important to continue to monitor the slope of the yield curve.”
US Manufacturing Expands:
US manufacturing in December expanded at the fastest pace in 3 months, as gains in orders and production capped the strongest year for factories since 2004, the ISM said Wednesday. The factory index climbed to 59.7, from 58.2 a month earlier, and beating the estimated figure of 58.2 as well.
A common refrain from companies surveyed, though, was difficulty finding highly-skilled labor, and some firms are paying higher wages to attract the workforce needed, ISM manufacturing survey committee chairman Timothy Fiore said on a conference call with reporters.
Crude oil Soars:
Crude oil futures soared towards $62/bbl in New York, rising to its highest in 3 years. Wednesday’s jump delivered exactly what the largest cohort of oil executives in a Dallas Federal Reserve survey last month said they needed to justify more shale exploration: prices above $61/bbl. If crude continues to climb and crosses the $66/bbl mark, even more corporate chiefs indicated they’re ready to pile in, according to the survey.
Singapore GDP Surpasses Expectations:
Singapore’s economy finished 2017 on a solid footing, allowing more room for policy makers to consider raising taxes and tightening monetary policy this year. Growth was faster than economists predicted last quarter, resulting in the strongest full-year expansion in 3 years, according to preliminary figures released on Tuesday. 4Q GDP expanded 3.1% year-on-year and 2.9% quarter-on-quarter, more than the respective estimations of 2.6% and 1.6%.
The solid data are giving credence to economist forecasts for higher taxes when the government releases its budget on Feb. 19, with one option being an increase in the goods and services tax. The Monetary Authority of Singapore may also shift to a tightening stance after opening the door to a possible move in its October policy meeting.
Weekly Thematic News:
Smart Real Estate Singapore:
Singapore home prices rose for a second straight quarter, reinforcing signs the city-state’s property market is emerging from a 4-year slump. An index tracking private residential prices rose 0.7% in the 3 months ended Dec. 31, building on a 0.7% gain the previous quarter, according to preliminary data from the Urban Redevelopment Authority released Tuesday. For 2017, prices rose 1% compared to a 3.1% decline in 2016, the data showed.
A jump in home sales and developers’ aggressive bids for land are stoking optimism the property market is making a comeback after prices fell for almost four years. Still, gains may be capped as the bulk of cooling measures rolled out since 2009 remain in place to avoid Hong Kong-style runaway price-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 33.5% from a year ago and provides a dividend yield of 4.9% as of Thursday.
USDSGD earlier this week slid to a 2-1/2 year low, breaking below the key 1.3350 support level in the process. The move was largely driven by the broadly weakening US dollar earlier this week, which drove the Dollar Index below the 92.50 support.
There has also been increasing expectations that the MAS could tighten monetary policy this year, as early as in April, in light of a recovery in the services sector. The next near-term support is at 1.3150, the low of 2015.
AUDUSD retreated from near 2-month highs on Thursday after the US dollar enjoyed a rebound following earlier weakness in the week. The pair continues to remain supported above the 0.7800 handle though after better-than-expected December China Caixin services PMI numbers buoyed demand for the Australian dollar.
USDCAD rebounded off its 1.2500 handle overnight, following the release of slightly-hawkish FOMC December minutes. The currency pair had declined to a 2-month low to start of the year, driven by a weaker US dollar and strengthening crude oil prices.
A break below the 1.2500 may signal more downside for USDCAD; conversely, a rebound off it should result in a recovery back to the 1.2700 handle.
USDCNH lingered near the psychological 6.5000 handle, after declining to its lowest level since last September on Tuesday. According to Bloomberg news, some analysts are predicting the central bank to intervene and curb yuan appreciation if it rallies further to below the 6.5000 mark.
Significant support is expected around the 6.4436 mark – the low in both 2016 and 2015.
The yen rebounded off the 112 handle after the Fed’s minutes indicated policy makers supported continued gradual rate hikes. USDJPY has traded largely within 110.50 and 114.50 over the last 3 months. The key level lies above at 114.50 – a break above could drive the pair further up towards 118.
GBPUSD pulled back from a 3-month high overnight to move back below its 1.3600 handle following worse-than-expected manufacturing and construction PMI figures released over the past 2 days.
The high of 1.3657 reached last September remains a stubborn resistance, although the uptrend of the currency pair since Jan 2017 continues to remain strongly in play. The pound last year recorded its best annual performance against the dollar since 2009, with an almost 10% rise amid broad dollar weakness. But it is still around 10% down against the dollar since the vote for Brexit.
Investors say that despite some progress in Brexit talks towards the end of last year, sterling needs stronger signs that Britain will get a transition deal and a favourable trade deal with the EU before it can climb further.