Spot values at a glance:
A global equity sell off deepened in Asia amid signs of an oversupply in commodities and as concern grows that stocks have become too expensive, while there remains uncertainty about U.S. tax reform. The dollar traded near a three-week low and Treasuries climbed.
Mining, oil and metal stocks were among the biggest losers on Japan’s Topix index, which is on track for its biggest slide since May. A Bloomberg commodities gauge dropped the most in 6 months and crude oil extended declines after the International Energy Agency cut its forecast for demand and cautioned the global market will remain oversupplied.
Data released Tuesday by the Chinese government showed that industrial production slowed in October, meaning less demand for raw materials. The slowdown wasn’t significant, 6.2% growth versus 6.6% in September, but it was enough to spook commodities traders following a strong rally over the past 3 months. Among the biggest losers was nickel, which tumbled by the most in almost 2 months, falling as much as 5.9%. Aluminium, copper and other base metals also declined.
US Tax Reform:
The House may vote on its version of the tax cut bill as soon as Thursday, while the Senate continues to hammer out its take. Goldman Sachs Group Inc. economists said in a note Tuesday the debate is moving faster than they expected, boosting the odds that tax reform will be enacted by early next year to 80% from 65%.
Eurozone Outlook Rosy:
Eurozone is already enjoying its strongest growth in a decade and now economists at Credit Suisse Group AG and Oxford Economics are declaring that it’s heading toward a golden period of low-inflationary expansion. In echoing their views, the European Commission last week raised its 2017 growth forecast to 2.2% from a 1.7% estimate in May. On Monday, the IMF reported that growth across the European region is having a positive spill-over effect on the rest of the world. It also said those brighter prospects accounted for the bulk of the upward revision to its global outlook in October.
Data due later today is predicted to show the region gained more momentum in the third quarter by expanding 0.6%, faster than the long-term trend, according to Bloomberg Economics. Still, the recent wounds run deep in the euro area. Productivity growth is nowhere near levels recorded at the start of the millennium, a quarter of young people can’t find a job and unemployment in the region’s periphery still exceeds 10%. And even at its current pace, growth will probably still lag behind the US Inflation of 1.4% in September remains below the ECB’s target of just below 2%.
Japan 3Q GDP:
Japan’s economy grew for a seventh straight quarter, its longest expansion since 2001, as a recovery in exports and rising business investment offset a decline in consumer spending. 3Q GDP grew at an annualized 1.4% quarter-on-quarter, compared with the 1.5% rise expected at the 2.6% growth in the prior quarter.
Economists are watching closely for signs that the tightest labor market in decades is beginning to bring the needed higher wage gains and accelerate consumer price gains.
Australian Wage Growth Miss:
Australia’s wage price index rose 0.5% from a quarter ago in Q3, unchanged from the prior figure and missing the median estimate of 0.7%, even with a mandated jump in the minimum wage which failed to lift workers’ pay across the board. The data has led analysts to push back expectations of the next RBA rate-hike, from August next year to September.
Weekly Thematic News:
Smart Real Estate Singapore:
According to a Bloomberg report on Monday, a series of blockbuster land deals in Singapore this year signal the city-state’s property market is set to break out of its prolonged slump in 2018. A Chinese group lobbed a winning record bid for a residential plot, while Guocoland Ltd. paid a record per-square foot price for an office development site in the central business district. Office rents last quarter rose for the first time in 2-1/2 years and home prices ended a 4-year slide. The spending spree may not be over, with more than S$3.3 billion of land deals set to be completed by the end of the year, pushing the annual total to S$14 billion, the highest since 2011, according to Cushman & Wakefield Inc.
The resurgence in deals suggests Singapore is on course to emulate Hong Kong’s red-hot property market, where home values have surged to record highs, following a jump in land prices last year, and office towers have fetched eye-popping prices. With housing-affordability much better in Singapore, there may be a surge in demand next year, according to BNP Paribas.
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 31.1% from a year ago and provides a dividend yield of 4.8%.
China Online US:
Alibaba Group Holding Ltd.’s Singles’ Day generated a record 168.2 billion yuan (or $25.3 billion) in sales, as the e-commerce giant worked with more traditional retailers to market discounted lobster, iPhones and refrigerators to shoppers from at least 225 countries and regions. The annual frenzy posted a 39% increase in sales, exceeding Citigroup Inc. estimates and defying concerns of an economic slowdown. About 90% of transactions were done via mobile. At its peak, the company’s processors handled 256,000 transactions per second.
According to an S&P report, this weekend’s record online spending puts the industry on course for a 20%-25% annual growth over the next 12-24 months, as online shopping becomes increasingly popular in lower-tier cities and rural areas.
Investors who wishes to capitalize on this trend can buy into the China Online US portfolio on iAdvisor, which consists US-listed e-commerce stocks domiciled in China, and has returned a stellar 63.5% year-on-year.
Waymo, the autonomous car unit of Google parent company Alphabet Inc., said last week it will soon start chauffeuring people in minivans without “safety drivers,” staffers that man the steering wheel. For almost a decade, self-driving cars have graced public roads, but always with a person behind the wheel. The move, a first for any company, is a major milestone for the internet giant’s bid to lead the crowded pack trying to commercialize driverless technology. The Alphabet arm has racked up more autonomous test miles on roads than others developing the tech, including Ford Motor Co. and Uber Technologies Inc.
The Self-Driving Car US portfolio on iAdvisor has been one of the top 5 performers over the past year, returning an impressive 45.0% from a year ago.
USDSGD continues to remain biased to the upside, after breaking out of its downward channel in end-October. The October-high of 1.3714 remains a key resistance. To the downside, the pair has been well-supported above its 50-day moving average of 1.3566.
AUDUSD slipped below the key 0.7600 handle Wednesday for the first time since July as disappoint wage data dampened expectations for an RBA rate-hike.
A retest of the longer-termed uptrend, established since Jan 2016, is likely over the near term, with the 0.7530 mark the next support target in line.
USDCAD gained to its highest in a week Wednesday following a weaker Canadian dollar, largely dragged lower by an overnight fall in crude oil prices. A retest of the 1.2900 handle is possible. To the downside, a retreat below 1.2655 is likely to lead to a reversion to the 1.2450 support.
The Canadian dollar is not expected to strengthen greatly after recent dovish comments from BOC Governor Poloz. Poloz had stated his confidence inflation will reach the 2% target, bolstering the market view the central bank won’t tighten at the next meeting on Dec. 6.
USDCNH slipped lower on Wednesday amid USD weakness. The pair’s 3-month high at 6.6904 is expected to cap any future moves higher, due to the overseas investors recently buying up onshore assets, as reported by Bloomberg on Monday.
Global funds boosted their holdings of Chinese bonds and stocks to record levels in September, with total ownership crossing 2 trillion yuan. Corporations, which built up stockpiles of overseas currencies in recent years as the yuan slid, now have a reason to bring money home as well, thanks to the yuan’s 4.5% gain in 2017.
USDJPY retreated to the 113 handle, near its lowest in 3 weeks, as a selloff in Japanese shares on Wednesday boosted demand for safer assets such as the yen. The stubborn resistance of 114.50 continues to cap upside moves; to the downside, the 113 support is holding well but only just. A break below 113 could trigger a sharper down-move to the 200-day moving average of around 111.50.
GBPUSD continues to be firmly supported above the psychological 1.3000 handle. UK inflation on Tuesday held at a 5-1/2 year high in October, rising 3.0% from a year earlier, less than the 3.1% expected. Policy makers had raised the key interest rate for the first time in more than a decade this month to tackle the rising cost of living.
A break below 1.3000 could lead a quick move towards 1.2812 – the pair’s 200-day moving average, last crossed in April this year.