Issue#: 518/2019

Spot values at a glance:







Daily Observations:

Most Asian stocks dipped Wednesday as investors adopted a cautious stance ahead of the Fed’s policy decision later today and further news on US-China trade talks, where negotiators remain at odds. Treasury yields held near recent lows amid expectations of a dovish tone from the Fed.


US Said to See China Trade Pushback:

According to a Bloomberg news report, some US negotiators are concerned that China is pushing back against American demands in trade talks, according to people familiar with the negotiations, even as President Donald Trump sounded optimistic about reaching a deal that could boost his re-election chances.

Chinese officials have shifted their stance because after agreeing to changes to their intellectual-property policies, they haven’t received assurances from the Trump administration that tariffs imposed on their exports would be lifted, 2 of the people said on condition of anonymity.

Beijing has also stepped back from its initial promises over data protection of pharmaceuticals, didn’t offer details on plans to improve patent linkages, and refused to give ground on data-service issues, one person familiar with the US’s views said. Beijing is trying to bring in wording that would ensure rules in the trade agreement have to comply with Chinese laws, the person added. “Talks with China are going very well,” Trump said in response to a shouted question at the White House where he held a joint press conference on Tuesday with Brazilian President Jair Bolsonaro.

US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin will travel to Beijing the week of March 25 for high-level talks to try to hammer out a deal, according to a senior administration official, who asked not to be identified. In recent days, US trade officials have sent comments to its Chinese counterparts seeking to address concerns with language in China’s revised offer on intellectual-property protection, according to one person briefed on the discussions.

While some American officials see China’s strategy as backpedalling on commitments, others were less concerned saying it was a normal part of the negotiation process.


Brexit Deadline May Get Extended:

The EU is likely to tell Theresa May that she must decide by mid-April whether to extend Brexit until 2020 or risk leaving in three months without a deal, a senior EU official said.

At a summit in Brussels on Thursday, leaders are likely to deliver an ultimatum that would give the British premier just 3 weeks to decide whether to gamble on getting the current Brexit deal through British Parliament by July. If she decides she can, the EU is almost certain to deny any further request for a Brexit delay were she to fail, the official said. That risks a no-deal exit in July. If she decides she can’t, the EU is likely to grant an extension into next year, which would be politically toxic at home.

The mid-April deadline stems from the timetable for European Parliament elections. If the UK doesn’t hold elections and doesn’t get a deal done, it will be ejected from the bloc on July 1. The UK’s seats are being reallocated to other countries and EU governments need to know on what basis they’ll be holding the May 23-26 ballot. Diplomats are also discussing whether EU leaders should return to Brussels next week for an emergency summit to sign off on an extension on March 28 or 29, two EU officials said.

May’s Brexit strategy was thrown into disarray this week when House of Commons Speaker John Bercow said she couldn’t put her unpopular deal back to lawmakers for a third attempt unless she changed her proposal first. But EU officials are still manoeuvring to try to help her get the agreement through Parliament, and see that as plan A.

In an attempt to make a Brexit extension look unpalatable to pro-Brexit members of parliament, EU leaders are likely to insist that the current divorce deal can’t be reopened even if the UK’s departure is postponed by many months.


China Consumers Provide Clues to Global Growth Outlook:

According to Jim O’Neill, former Goldman Sachs Group Inc. chief economist and coiner of the BRICS acronym, anyone looking for reasons why the global economy is slowing and what can be done about it needs to understand the outlook for China’s consumers.

O’Neill is worried about the drag from Chinese consumption after retail sales tumbled to the slowest pace in 16 years last year, car sales fell in 2018 for the first time since the early 1990s, and numerous companies like Apple indicated slowing China sales are hurting business.

“Other challenges, such as excessive debt growth, pollution, trade disputes” are all important but matter much less than the strength of the consumer, he said in a recent email interview with Bloomberg. For more than 2 decades, O’Neill says he’s been more optimistic than many economists about prospects for global growth, in large part because he saw the Chinese consumer becoming more important. But now, sentiment has plunged to the lowest level in a decade and O’Neill says that’s a big risk for the world economy.

Measures to support slowing growth unveiled this month in Premier Li Keqiang’s annual work report offered few sweeteners for consumers, and there was no target for retail sales growth after last year’s goal of about 10% expansion was missed by a percentage point. In January, the IMF cut its forecast for global expansion this year to 3.5% from 3.7%; O’Neill says it’ll take a comeback from Chinese consumption to push it back toward 4%.


Australia Imposes New Migrant Population Plan:

Australia will cut its cap on migration by 15% and issue new visas that require some skilled workers to live in regional areas, in a population plan Prime Minister Scott Morrison says is needed to alleviate pressure on big cities.

The nation’s annual migration ceiling will be reduced from 190,000 places to 160,000, a figure in-line with 2017-18’s 12-month intake, which was the lowest level in a decade. As many as 23,000 people will need to live and work in regional Australia for 3 years before being able to access permanent residence.

Morrison’s government, which trails in opinion polls ahead of elections due in May, wants to address concerns by voters in major cities. These include fears the immigration that’s helped boost Australia’s population by 50% over the past three decades has also triggered over-burdened infrastructure, expensive housing and low wage growth. Still, he’s also aware that drastic cuts to the intake could jeopardize a core driver of economic growth.

The government says the new regional visas are needed because there are an estimated 47,000 job vacancies outside the big cities. It comes after the government said in October that just under half of the total intake would be affected by the planned measures. A Lowy Institute survey released in July showed 54% of Australians think the total number of migrants coming to Australia each year is too high, while 30% said it’s adequate and 14% too low.


Buy Gold, Sell Stocks:

According to Crescat Capital LLC, whose Global Macro Fund returned 41% last year alone and has a history of outperforming the S&P 500 Index, the “trade of the century” is to buy gold and sell stocks as risk assets are due for another meltdown.

The investment company says it’s ready to capitalize on an end of the economic cycle as indicators warn that a recession is imminent in the coming quarters. The consensus is pointing to a recession in 2020 or 2021, Tavi Costa, a global macro analyst at Crescat, said by phone. “We think it’s a lot closer than that and we have a number of macro timing indicators that we look at.”

Going long gold in yuan terms and shorting global equities currently explains three-quarters of the hedge fund’s strategy. While the firm uses the MSCI World Index in models to visualize the trade, it goes a bit deeper with its short position, selecting individual stocks and exchange-traded funds to bet against.

Among the warning signs, Crescat cites corporate insiders who are currently selling stocks hand over fist, indicating a potential stock bubble burst. In early 2017, those investors heavily sold shares while the S&P 500 continued climbing. That happened again in 2018. With the smart money selling once again, “the third time should be the charm for the stubborn US market,” Crescat wrote to clients over the weekend.

US economic data is deteriorating and inversions remain across the Treasury yield curve, the hedge fund pointed out. Measuring multiple yield spreads across the curve from Fed Funds to 30-year Treasury bonds, Crescat found that almost 45% of the curve is inverted. “The last two times the credit markets had such a high distortion, asset bubbles began to fall apart shortly thereafter,” Crescat wrote.

As for the almost 13% rebound in global stocks in 2019, Costa said the firm has a high conviction it’s simply a bear-market rally. Just about everything has bounced since the start of the year, accompanied by an abrupt decline in the Cboe Volatility Index, are reminiscent of head fakes in such advances.


FX Updates:


Spot: 1.3524

USDSGD bounced off the 1.3500 handle earlier, rebounding off a 2-week low, amid USD strength ahead of tonight’s Fed policy decision. Markets have priced in a Fed dot chart showing no rate hike for this year, so such an outcome is expected to trigger profit-taking on dovish bets, according to Nomura note on Wednesday. USDSGD has largely been bound between the 1.3500 and 1.3600 handle over the past 2 months.



Spot: 0.7071

AUDUSD slipped below 0.7100 after the Australian government said home prices may drop further, potentially posing a risk to financial stability and increasing the odds of an RBA rate cut. A continued fall below the psychological 0.7000 is likely to lead to a retest of the 0.6800 support region.



Spot: 1.3332

USDCAD bounced off its 50-day moving average last night, maintaining its gain after PM Trudeau unveiled Canada’s 2019-2020 budget, using a windfall in new revenue to increase spending while leaving Canada’s fiscal track largely in line with last November’s fiscal update. The longer-term trend for USDCAD remains to the upside, although the pair’s recent failure to regain above 1.3500 could signal a potential pause in direction over the medium term.



Spot: 6.7166

USDCNH was largely unchanged on the day, as investors await fresh developments on US-China trade talks. Longer-term technical indicators point to more downside for USDCNH. A decline back below 6.7000 is probable, especially if the potential trade deal between US and China hits a snag.



Spot: 111.60

USDJPY failed to regain above 112 last week, and is threatening to retreat back below its 200-day moving average of 111.43, although overnight the pair has reversed previous session’s declines and climbed back to 111.60. A failure to regain above 112 in the near future could signal USDJPY’s exhaustion of its climb from the sub-106 January low.



Spot: 1.3256

GBPUSD continues to hover just below 1.3300, amid political noise surround the potential extension of Brexit’s deadline. According to Bloomberg news, investors are betting big that the pound will rally in the next month as they anticipate a delay to Brexit. A decisive break above 1.3300 could lead to a retest of the 1.4000 resistance level, last reached in April 2018.


Sources: Bloomberg

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UEN: 201419754M

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