Issue#: 497/2018

Spot values at a glance:







Daily Observations:

Asian equities are set to round out the week in mixed fashion as investors gauge whether China and the US can de-escalate their trade spat before the G-20 summit later this month. Stocks slipped in Japan and Hong Kong, and were little changed in South Korea, China and Australia. Commerce Secretary Wilbur Ross dampened hopes of any imminent US-China deal. The pound steadied after Thursday’s plunge as Brexit again threw the UK government into turmoil. 


May Holds Firm For Now:

British Prime Minister Theresa May is defying demands to quit as she battles to keep control of her fractious government long enough to deliver a Brexit deal that’s drawn ire from across the political spectrum. Facing a revolt over her proposed exit agreement with the European Union, May said she would stay in office because the public expects her to see through their 2016 vote to leave the bloc in an orderly way.

But she has a major battle on her hands with adversaries inside her Conservative Party and could be fighting a formal leadership challenge within days. If that happens and May is forced out, the UK will be just 4 months away from leaving the EU with no sign of an agreement on the terms of a split, a deepening political crisis and the prospect of financial markets and the economy going into a tailspin.

Thursday began with good news for May when European Council President Donald Tusk announced plans for a special summit on Nov. 25 for leaders to sign off the Brexit deal. It was exactly what May needed to hear, with her government estimating that unilaterally ending more than 4 decades of EU membership could cost the U.K. as much as 10% in lost economic output in the long term. But over the 3 hours that followed, 4 ministers, including her chief Brexit negotiator, resigned from her government because they regard her plan to keep close to EU rules as a betrayal of the promises made to voters.

Then, Jacob Rees-Mogg, the influential leader of a group of 60 rank-and-file Tories announced he had sent a formal letter demanding a vote of no confidence in May’s leadership, the process that could quickly lead to May being forced from power. A flurry of others followed, though the crucial threshold of 48 rebels has not yet been reached.


US Still Plans to Raise Tariffs on Chines Goods Next Year:

The US still plans to raise tariffs on Chinese imports in January with President Donald Trump and China’s Xi Jinping likely at best to agree to a “framework” for further talks to resolve trade tensions at an upcoming meeting, Commerce Secretary Wilbur Ross said.

The US and China are now discussing the agenda for the 2 leaders’ meeting on the sidelines of the Nov. 30-Dec. 1 Group of 20 summit in Buenos Aires and what a realistic outcome could be. When asked about a report that China this week had presented a list of possible concessions ahead of the talks, Ross said in an interview Thursday that everything leading up to the meeting is just “preparatory.”Ross also said that the US is still planning on Jan. 1 to increase tariffs to 25% on some $200 billion in goods from China that became subject to a 10% import tax in September.

Ross’s comments are a sign of what appears to be a growing appetite in the Trump administration to reach a deal with China to bring an end to the escalation of tit-for-tat tariffs that have unnerved investors and companies around the world. But they also were an acknowledgment of just how hard securing a deal will be.


China Contemplate US Concessions Ahead of G20:

According to a Bloomberg report on Thursday, Chinese officials have outlined a series of potential concessions to the Trump administration for the first time since the summer as they continue to try to resolve a trade war between the world’s two largest economies, according to 3 people familiar with the discussions.

The commitments for now fall short of the type of major structural reforms that President Donald Trump has been demanding, 2 of the people said, cautioning that a long road lies ahead in negotiations. One person said that talks are continuing and constructive.

As a result, one of the people said, it raised doubts over how substantive a deal Trump could make with Chinese counterpart Xi Jinping when the two leaders meet later this month on the sidelines of the Group of 20 summit in Buenos Aires.

Most of the document appeared to be a rehash of previous changes already made by Beijing, such as raising equity caps on foreign investment in certain industries, according to one person. It did not contain the sort of commitment to change industrial policies such as Xi’s “Made in China 2025” that Washington has been seeking, according to one person familiar with the discussions.


Powell Warns of Economic Headwinds in 2019:

Federal Reserve Chairman Jerome Powell said the US economy is strong but could face headwinds next year as policy makers weigh how far and fast to raise interest rates.

“We have to be thinking about how much further to raise rates, and the pace at which we will raise rates,” Powell said during a question and answers session Wednesday in Dallas moderated by Dallas Fed chief Robert Kaplan. The goal is to “extend the recovery, expansion, and to keep unemployment low, to keep inflation low.”

While generally upbeat about the US economic outlook, Powell listed potential challenges including slowing growth abroad, fading fiscal stimulus and the lagged effect on the economy of the Fed’s 8 rate increases since late 2015.


Singapore Warns Asean May Face US-China Choice:

Singaporean Prime Minister Lee Hsien Loong warned that Southeast Asian nations may one day have to choose between the US and China, as concerns deepen about a Cold War-style conflict between the world’s biggest economies. “The circumstances may come where Asean will have to choose one or the other,” Lee said on Thursday night at the close of a regional summit hosted by the 10-member Association of Southeast Asian Nations. “I hope it does not happen soon.”

Lee’s remarks reflect fears among smaller nations that the US-China trade war could disrupt supply chain integration throughout Asia, leading to different sets of rules for operating with either powerhouse. Earlier this month, former US Treasury Secretary Hank Paulson warned of an “Economic Iron Curtain” dividing the world if the two countries can’t reach a deal.

Lee warned that the rules-based multilateral order is “fraying” and called for greater economic integration in the region. He said Asean tries to be friends with all major powers, and needs to understand where it may need to make a choice between them. “If you’re talking about economic cooperation, theoretically that is win-win,” Lee said. “But if the global economy pulls apart into different blocs,” he added, “then Asean will be put in a difficult position.”


Sources: Bloomberg


FX Updates:


Spot: 1.3760

USDSGD slipped further below 1.3800 Friday, as the pair starts to show signs of exhaustion after failing to retest its key resistance at 1.3873. A decline below 1.3700 would likely lead to a swift retreat back to the 1.3600 support, last visited in the months of August and September.



Spot: 0.7267

AUDUSD received an unexpected boost Thursday on the back of better-than-expected Australian October employment data. The pair however failed to break above the key resistance at 0.7315 and remains little changed today. The technical bias continues to remain to the upside; a break above 0.7315 would confirm the breakout and likely lead to an ascent to the next resistance of 0.7500.



Spot: 1.3161

USDCAD retreated sharply below 1.3200 having failed to break above the key 1.3250 mark over the course of the week. The move was further amplified by a recovery in crude oil prices over the last 2 days. Over the near term, more downside is expected; a move lower towards 1.3000 is likely especially if crude oil continues its recovery.




Spot: 6.9311

USDCNH looks poised to slip for a fourth consecutive session, after reports that China outlined trade concessions to the US and even as Wilbur Ross downplayed chances of a quick trade deal. The key level continues to remain at 7.0000.



Spot: 113.40

USDJPY was little changed earlier today, but could fall further towards 113 after Wilbur Ross’ comments yesterday. The pair’s 2018 uptrend remains strong. The key resistance resides at 114.55, a level that has held 3 times since July last year.



Spot: 1.2791

GBPUSD looks set to suffer its first week of losses this month and volatility soared to a 2-year high after the Brexit deal led to speculation of a leadership challenge. The pair has managed to pare overnight losses but continued uncertainty looks set to weigh on the currency once European markets open later today. It seems likely GBPUSD will trade closer to 1.2500 by year’s end.


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UEN: 201419754M

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