Issue#: 469/2018

Spot values at a glance:

USD/SGD

USD/CNH

AUD/USD

USD/JPY

USD/CAD

GBP/USD

Daily Observations:

Asian stocks traded mixed Friday as the US imposed tariffs on Chinese imports prompting a promise of retaliation. The dollar edged higher and Treasuries were little changed. Stocks in Japan and Korea rose while those in Hong Kong and China slipped. Shares in Singapore sank after the government unexpectedly tightened curbs on the property market.

 

Trump Tariffs Set to Take Effect Today:

US President Donald Trump is firing the biggest shot yet in the global trade war by imposing tariffs on $34 billion of Chinese imports, delivering on a promise to his political supporters that risks provoking retaliation and harming the world economy.

The duties on Chinese goods will go forward just after midnight, Trump told reporters on Air Force One on his way to Montana on Thursday. Another $16 billion of goods could follow in two weeks, Trump said, before suggesting the final total could eventually reach $550 billion, a figure that exceeds all of China’s annual goods exports to the US.

As of 12:01 a.m. Friday in Washington, US customs officials are set to begin collecting additional 25% tariffs on Chinese imports of goods ranging from farming plows to semiconductors and airplane parts.

The riskiest economic gamble of Trump’s presidency could spread as it enters a new and dangerous phase by imposing direct costs on companies and consumers globally. China has vowed to hit back in kind on goods ranging from American soybeans to pork, which may in turn prompt Trump to raise trade barriers even higher.

 

Trade War Havens:

Escalating trade tensions between China and the US have prompted investors seeking safe haven assets to take refuge in the US dollar. Supported by an even more powerful dynamic – the Fed’s monetary policy normalization, the greenback has been boosted by expectations for stepped-up Fed tightening. Other haven assets, however, have been left floundering.

Gold, a haven for millennia in times of turmoil, hasn’t been so hot the past three months, falling more than 5%, while the Japanese yen, often a safe harbor thanks to the country’s status as the world’s biggest net creditor, has dropped almost 3% in that period. The Swiss franc, another favorite for the cautious, is also down 3%. Behind the declines of all three has been the appreciation of the dollar, up more than 5% as measured by the Dollar Index.

The dollar’s strength in recent months has had the knock-on effect of boosting Australian shares, which have repeatedly offered a touch of green amid a picture of red for Asia-Pacific. A weaker Australian currency has bolstered the appeal of the country’s companies, despite the risk of a trade war damaging its exports.

 

Fed to Keep Hiking Gradually:

Federal Reserve officials said a “very strong” economy warranted continued increases in their benchmark policy rate while citing an escalating trade war and emerging-market turmoil as risks to growth.

In its June 12-13 meeting minutes, released last night, officials remain committed to moving toward a slightly restrictive monetary policy, based on their outlook that low unemployment will lift wages and keep inflation near their 2% target over the medium term.

Yet the minutes did highlight a debate among policy makers over how many more rate increases would be needed to keep the economy on a stable footing in the long run. A “number” of officials said it might “soon be appropriate” to modify language in the Fed’s post-meeting statement language that describes rates as “accommodative.”

 

Singapore Announced Surprise Property Cooling Measures:

Singapore property and bank stocks led declines on the benchmark stock index Friday after the government unexpectedly tightened property curbs to cool a market the central bank described as euphoric. City Developments Ltd. and UOL Group Ltd. fell more than 14% each. The index tracking property stocks dropped 1.4 percent as of 9:02 a.m. in Singapore Friday, set for the lowest close in more than 15 months. It had risen the most in two weeks Thursday despite a warning from the central bank chief the previous day that there was “a euphoria” in the housing market. Bank shares also fell.

The announcement late Thursday of higher stamp duty rates and tougher loan-to-value limits for buyers surprised investors, who had pushed shares of property developers higher earlier in the day. Individuals taking up their first housing loan will face tighter borrowing limits under the new rules, meaning they have to put up more cash to buy property. For foreign purchases of residential property, the additional buyers stamp duty increases to 20% from 15%, while for Singapore citizens the rate increases apply only from their second purchase

 

Germany Reportedly Unconvinced with May’s Brexit Plan:

According to Bloomberg news, Chancellor Angela Merkel’s government is unconvinced by UK Prime Minister Theresa May’s latest attempt at a compromise arrangement for customs after Brexit, seeing it as unworkable.

May is proposing a complicated customs setup that would leave the UK collecting tariffs on behalf of the EU on goods crossing its border. May travelled to Berlin on Thursday for talks with Merkel as she seeks backing from key European capitals for her plan on the future trading relationship she wants with the bloc.

German reticence threatens to undermine May’s proposal on how customs will operate at a time when she is already fighting for backing from members of her own Cabinet. In a statement welcoming May to the Chancellery, Merkel reminded the prime minister that the clock is ticking toward the UK’s exit from the EU in March 2019.

 

BOE’s Carney Talks Up UK Economy:

The UK economy is showing signs of rebounding from a sluggish first quarter of the year, supporting the view that it will require higher interest rates, according to Bank of England Governor Mark Carney. “Domestically, the incoming data have given me greater confidence that the softness of U.K. activity in the first quarter was largely due to the weather, not the economic climate,” Carney said.

His upbeat remarks on growth leave the door open to a BOE interest-rate increase as early as the next meeting on Aug. 2, when officials also update their forecasts. Investors currently see about an 80% chance of a quarter-point move next month, according to Bloomberg news.

 

 

FX Updates:

USD/SGD:

Spot: 1.3655

USDSGD retreated from a key region of resistance Tuesday – the 50% Fibonacci retracement level at 1.3773. The pair is currently around overbought levels, as indicated by its RSI readings. A decline back towards 1.3500 is possible over the near-to-medium term.

 

AUD/USD

Spot: 0.7382

Resuming its longer-term downward trend, AUDUSD retreated back below 0.7400 despite little movement in the US dollar. A retest of the 0.7300 handle is possible, especially if a stronger-than-expected US payrolls number is reported tonight. A climb back above 0.7600 could signal a possible reversal.

 

USD/CAD:

Spot: 1.3149

USDCAD has been trading in a tight range this week, kept within the 1.3100 and 1.3200 handles. Market participants seem to be patiently waiting for both of tonight’s US and Canada jobs reports. 1.3100 continues to serve as a support level for the currency pair.

 

USD/CNH:

Spot: 6.6784

USDCNH rebounded back towards 6.7000 earlier today, with the yuan poised to register its fourth consecutive weekly drop, the longest losing streak for the currency since Oct 2016. USDCNH seems to be greatly overbought, as indicated by its relative strength index, a reversion back to 6.6000 is expected.

 

USD/JPY:

Spot: 110.68

USDJPY was little changed earlier, as market participants preferred to remain on the sidelines ahead US nonfarm payrolls tonight. In addition, trade tariffs are set to take effect later today.

Japan’s currency rose against every single Group-of-10 peer in the first half this year, with an average 4.8% gain. That’s outpaced the dollar, which trumped 8 peers and advanced 2.9%. A combination of US protectionism, European populism and emerging market turmoil threatens to push the yen, a traditional safe haven currency asset, even higher in the second half, according to analysts surveyed by Bloomberg.

 

GBP/USD:

Spot: 1.3218

GBPUSD erased its previous day’s gains, sliding back towards the 1.3200 handle, after a report claimed the German government has deemed the new customs plan unworkable. Sterling was lifted this morning by BOE governor Mark Carney boosting interest rate hike hopes by revealing that he is confident that the UK economy has rebounded in the second quarter of the year. But the Bloomberg report indicating that Theresa May’s new customs plan will struggle to convince EU leaders even if it is embraced by her divided party knocked back sterling.

 

Sources: Bloomberg

© Jachin Capital Pte Ltd

UEN: 201419754M


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