Issue#: 525/2019

Spot values at a glance:







Daily Observations:

Asian stocks were mostly lower Tuesday after a technology rout sank Nasdaq shares overnight. Treasuries came off their highs after yields dived on growing conviction the Federal Reserve will cut interest rates. The Nasdaq 100 Index tumbled more than 2% Monday as the FAANG cohort of tech companies was said to potentially face antitrust probes. 2-year US yields earlier dropped to their lowest since 2017 a Fed official said the central bank may need to cut rates soon amid the trade war.


Investors Flock to US Treasuries:

Investors are plowing into Treasuries, favoring shorter maturities in particular, on growing conviction the Fed will cut interest rates this year to contain the fallout from trade tensions. 2-year yields sank to their lowest level since December 2017 and have tumbled by more than a quarter-point since the middle of last week.

China’s move to extend retaliatory tariffs on US imports helped ignite Monday’s rally, and a report showing weakness in American manufacturing added to the grim mood. St. Louis Fed President James Bullard accelerated the haven demand by saying a rate cut may be needed “soon” amid the trade war.

The trade friction and fresh signs of a slowing growth outlook led traders to ramp up bets the Fed will slash rates this year. Futures now reflect more than a half percentage point of easing in 2019, and further cuts in the first quarter of 2020. Shorter-maturity Treasuries, which are more sensitive than longer-dated debt to Fed expectations, are likely to outperform as investors price in policy easing.


The outperformance of 2-year Treasuries relative to 10-year notes over the past week increased the yield premium of the longer note over the shorter one to as much as 25 basis points on Monday, the most in month, in a move known as “bull-steepening.”


Tech Stocks Routed:

 According to Bloomberg news, tech giants are girding for sweeping investigations into their business practices as top US antitrust officials and lawmakers carved out a battle plan targeting Silicon Valley’s best-known names, sending shares tumbling and raising the prospect of a drawn-out fight with the government.

The House Judiciary Committee said late Monday it plans a bipartisan investigation into whether digital platform companies are using their market power to harm competition. That move heightens scrutiny of Alphabet Inc.’s Google, Inc. and Facebook Inc. after news that top antitrust officials have agreed to divvy up oversight of several technology giants.

The Federal Trade Commission will take responsibility for antitrust probes of Facebook and Amazon, while the Justice Department is set to open an investigation of Google, according to people familiar with the matter. The Justice Department will also oversee scrutiny of Apple Inc., one of the people said.

By parceling out antitrust oversight, the US government has set the stage for formal inquiries and escalated pressure on the companies amid increasing criticism that their practices are harming competition in digital markets. After years of being hands off on the industry, enforcers are on the verge of opening broad investigations that could yield significant changes to how the companies do business and potentially lead to a break up of a company.

Shares of technology companies fell on the news of the broad agreement between the Justice Department and the FTC, which could have ramifications across the industry. Alphabet dropped 6.1% to $1,036.23 in New York. Amazon fell 4.6% to $1,692.69, while Facebook slid 7.5% to $164.15, the most since July 2018. Apple shares fell 1% to $173.30.


US Manufacturing Gauge Sinks to Lowest Level in Trump Era:

A measure of US manufacturing activity unexpectedly fell in May to the lowest level since October 2016, in a sign President Donald Trump’s trade war with China is weighing on the economy as he considers further tariffs.

The Institute for Supply Management’s purchasing managers index declined to 52.1 from 52.8, missing the median forecast of 53 in Bloomberg’s survey but holding above the 50 mark that indicates expansion. Three of five components declined, including production, inventories and supplier deliveries, according to a report Monday. 11 of 18 manufacturing industries reported growth.

The report follows signs from other major economies that trade tensions weighed on global manufacturing last month. UK manufacturing shrank for the first time in almost 3 years while gauges for China and South Korea both fell below the key 50 level. A separate report Monday showed the JPMorgan Global Manufacturing PMI fell to 49.8 in May, the weakest reading in data since mid-2016.

Producers, who already faced headwinds from slowing global growth and inflated inventories, may face additional fallout after Trump’s threat last week to impose tariffs on all imports from Mexico. Sustained weakness would dent economic growth and could be a factor that prompts the Federal Reserve to cut interest rates, as investors and some economists expect.


RBA Expected to Cut Rates:

Australia’s central bank is set to end an unprecedented pause in interest-rate cuts as it ratchets up efforts to revive inflation, a goal some economists say will require stimulus that tests the lower bounds of policy.

Markets and economists are all but certain the Reserve Bank will lower the cash rate to a fresh record of 1.25% Tuesday in its first move since August 2016. Governor Philip Lowe hopes that will help push unemployment below 5% to drive faster wage growth; yet international experience suggests even a jobless rate closer to 4% could take time to spur faster inflation.

Lowe has switched to a more conventional policy focus after spending his first 2-1/2 years as governor deflating asset prices and strengthening the financial system, key pillars of his broader vision of central banking. Yet he’s been forced to return to the same puzzle confronting his peers across the globe: consumer prices that defy very easy policy and extremely tight labor markets.

Traders only started expecting RBA cuts after the US pivoted from hikes, with their bets really gaining pace when markets decided Federal Reserve easing was looking more likely. They’re pricing in a better than 90% chance of 2 Australian rate cuts in the next quarter, and the potential for a 50 basis-point move Tuesday has also been flagged.


Fed’s Bullard Says Trade War Worries May Result in Rate Cut:

The Fed may need to cut interest rates soon to prop up inflation and counter downside economic risks from an escalating trade war, St. Louis Fed President James Bullard said.

“A downward policy rate adjustment may be warranted soon to help re-center inflation and inflation expectations at target and also to provide some insurance in case of a sharper-than-expected slowdown,” Bullard said Monday in remarks prepared for a talk in Chicago. “The direct effects of trade restrictions on the US economy are relatively small, but the effects through global financial markets may be larger.”

Bullard’s comments mark the first time a Fed official has publicly suggested the need for a rate cut since the central bank put rates on hold in January when it pledged to be “patient” as it weighed headwinds from slower global growth and the fallout from the trade war.

Fed officials have recently stressed that their approach to policy is still appropriate. That was the message earlier on Monday from San Francisco Fed chief Mary Daly in Singapore, though Fed Vice Chair Richard Clarida opened the door to a cut in remarks Thursday that stressed policy makers were watching risks to the outlook.

One of the most dovish members of the Fed, Bullard is a voter this year on the rate-setting Federal Open Market Committee, which meets next June 18-19 in Washington. Minneapolis Fed President Neel Kashkari, who along with Bullard has most vocally opposed higher rates in recent years, said last Friday that he was “not quite there yet” on the need for easing.

Fed officials are also worried about low inflation, which has persistently undershot their 2% target throughout most of the current economic expansion, and its effect on inflation expectations. They will gather with leading academics on Tuesday and Wednesday at a conference in Chicago to debate the problem.


Singapore PMI Contracts for First Time in Almost 3 Years:

Singapore’s purchasing managers index slumped in May, signaling a contraction in manufacturing as trade tensions and a global slowdown weigh on the city state’s economy. The PMI declined to 49.9 last month, dropping below 50 for the first time since August 2016, according to data from the Singapore Institute of Purchasing and Materials Management. 

The electronics sub-index fell to 49.4, its weakest level since June 2016. A reading of 50 marks the dividing line between expansion and contraction. A slowing electronics cycle has weighed on the overall index since last year. The outlook is worsening as the US-China trade war escalates and President Donald Trump threatens countries like Mexico with higher tariffs, putting the global economy at risk.

Singapore’s data are in line with the general trend across Asia, with PMI reports on Monday showing another slump from export powerhouses Japan and South Korea.


Sources: Bloomberg


FX Updates:


Spot: 1.3686

USDSGD looks poised to slide for a fourth consecutive session, despite bouncing off its 200-day moving average at 1.3656 earlier today. The USD has been pressured in recent days due to mounting bets on Fed rate cuts. The support at 1.3614 is likely to hold over the near-term.



Spot: 0.6971

AUDUSD gained earlier today, prior to the RBA’s interest rate decision in which the central bank is expected to cut rates by 25bp to 1.25%. The pair has gained for 4 straight sessions, though it is unlikely to break above the 0.7000 barrier. The longer-term trend continues to point to the downside.  The next support bellows lies at 0.6828.



Spot: 1.3441

USDCAD slipped back to the 1.3500 handle, following a broadly weaker US dollar. In addition, crude oil futures has since stabilized around $53/bbl since Monday, and hence propping up the Canadian dollar. The FX pair’s next support resides at 1.3385, as its major long-term trend remains to the upside.



Spot: 6.9227

Since soaring earlier last month, USDCNH has since found a consolidation range between 6.9000 and 6.9500 over the past 2 weeks. A weakening USD could result in a correction in USDCNH, with a pullback to its 200-day moving average at 6.8338.



Spot: 107.99

USDJPY slipped to a 5-month low earlier today, breaching the 108 handle in the process, as the USD continues to lose ground in Asia despite the minor uptick in Treasury yields this morning. The 108 handle is expected to hold over the near term, especially if yields continue to recover ground.



Spot: 1.2667

GBPUSD seemed to have found some temporary footing at 1.2600, as the pair continues to hold above it over the past week. However, fears of a hard Brexit continues to cap the upside for GBP, even despite a weaker USD. Tory’s candidate Boris Johnson has said that if it depends on him, the UK will leave the EU on October 31st with or without a deal. A continually weaker USD might provide some short respite for GBPUSD, with a pullback up to 1.2800 a possibility. However, the path of least resistance remains to the downside; the next support resides at the January low of 1.2441.

© Jachin Capital Pte Ltd

UEN: 201419754M

The contents of this document are for information only and is taken or compiled from sources that we, Jachin Capital Pte Ltd, believe to be reliable. To the maximum extent permitted by law, we do not make any representation or warranty (express or implied) that this information is accurate, timely or complete and it should not be relied upon as such. Opinions expressed are our current opinions as at the date of this document only and are subject to change without notice. We endeavour to update on a reasonable basis the information discussed but regulatory, compliance or other reasons may prevent us from doing so. The publication and distribution of this document is not and does not imply any form of endorsement of any person, entity, service or product described or appearing here. This is not and does not constitute or form an offer to buy or sell nor the solicitation of an offer to buy or sell any security or financial instrument nor to participate in any particular trading or investment strategy. We are not soliciting any action based on this document. The information, services and products described or appearing here are intended only for Accredited Investors (as currently defined in the Securities and Futures Act) and are not intended for nor targeted at the public in any specific jurisdiction. This information does not take into account the particular investment objectives, financial situations or needs of individual investors. Investors should seek independent financial, tax or legal advice or make independent investigations as considered necessary or appropriate before making an investment decision. Investments involve risk. Any past performance, projection, forecast or simulation of results is not necessarily indicative of the future or likely performance of any investment instrument.

Essential SSL