Spot values at a glance:
The dollar declined with Treasury yields amid uncertainty about the prospects of US tax cuts and as investors digested news that President Donald Trump will pick Jerome Powell to lead the Federal Reserve. Asian equities mostly slipped, along with US equity index futures. The Bank of England is expected to raise rates later today.
The Federal Reserve upgraded its assessment of US growth in its Wednesday decision and left rates unchanged at 1% to 1.25%, keeping the central bank on track for a December hike. Economic activity was described as “solid” for the first time since January 2015, a meeting at which the two most recent GDP figures policy makers had seen showed growth of 4.6% and 5.2%.
The Fed indicated that it is still confident that inflation, which is running at about 1.3%, will ultimately, someday, eventually rise to its 2% target and that another rate increase is warranted in December.
Fed Chair Search:
Just before the FOMC statement was released, Trump said he’ll announce his pick Thursday afternoon, adding that people will be “extremely impressed with this person”. The president is leaning toward picking Fed Governor Jerome Powell, according to three people familiar with the matter, though he has also been considering other candidates including Yellen, whom he called “excellent”.
The Russell 2000 Index slumped on Wednesday as Congressional Republicans delayed the release of their tax overhaul plan, while the S&P 500 Index and Dow Jones Industrial Average moved higher. House Budget Chairman Diane Black said the rollout will come on Thursday.
If the bill is released Thursday, one day later than planned, GOP leaders will have just 10 official legislative days before the Thanksgiving holiday to do nothing short of rewiring the U.S. economic engine, according to Bloomberg News.
Bank of England:
The Bank of England is widely expected to deliver its first rate hike in a decade Thursday despite the overhang of Brexit uncertainty. The pound’s plunge has fuelled a pick-up in inflation, while the nation’s longer-term growth outlook has dimmed. If Governor Mark Carney doesn’t follow through with an increase, it’ll affirm his reputation as an “unreliable boyfriend,” a moniker bestowed upon him by a UK lawmaker. The British Chamber of Commerce has urged the central bank to hold off on a hike for now, joining a chorus of commentators who fear monetary tightening would constitute a policy mistake. At the Bank’s last meeting, 2 monetary policy makers dissented in favour of higher rates
A marginal retreat in WTI futures belied the positive news for crude on Wednesday: one of the most concrete signs that the effort to rebalance the oil market has borne fruit. The 6-month spread for WTI futures is now in backwardation, a move which should deter shale producers from locking in production for 2018 via futures contracts, as these longer-dated contracts are now also lower-priced.
This curve marks a successfully rebalancing market. The WTI’s previously upward-sloping front end encouraged shale producers to lock in future production thanks to the higher prices on longer-dated contracts; the reverse will help further alleviate the glut in crude. There’s also been a near-relentless draw in US oil inventories since March, a chief aim of the deal made by OPEC and other major producers in late 2016 to curb output, and the number of active US rigs has gradually declined from an August peak, implying a limited supply response to the rally in prices.
Metals, such as nickel, aluminium and zinc, remain on a tear as inventories on the London Metal Exchange continue to shrink.
President Xi Jinping called for stable China-North Korea ties in a message to Kim Jong Un shortly before Donald Trump makes his first visit to Asia as US president. Xi sent the note after Kim congratulated him last week on a second term as general secretary of the Communist Party of China Central Committee, the state-run Korean Central News Agency reported.
Weekly Thematic News:
Investors are accessing the possibility that tax credits for solar power may be removed by the US government should policy makers seek avenues to make up for lost revenue following the anticipated tax reform proposal.
The International Trade Commission offers owners of solar systems a tax credit worth 30% of their systems’ costs, and both companies would be adversely affected if it was reduced or eliminated. Wind and solar have been the fastest growing sources of US electricity since 2014, spurred by federal tax credits. The credits are scheduled to be mostly phased out in the 2020’s.
With the move to clean energy being a global and increasingly heavily-emphasized trend, the multi-year growth of the solar energy industry is expected to continue nonetheless. Investors can purchase the Solar Energy US portfolio on iAdvisor, which has outperformed every other portfolio over the last month, returning 7.8% as of Thursday.
Smart Real Estate Singapore:
By filling the sea along its coasts with imported sand, Singapore has expanded its physical size by about 24% since 1960, according to data from the Singapore Land Authority. However, getting a steady supply of sand to keep extending the shoreline has become more complicated over the years, with countries such as Indonesia and Vietnam having halted sand exports amid environmental concerns and political considerations about shipping lanes and territorial boundaries. In July, Cambodia became the latest country to ban sand shipments to Singapore following pressure from activists alarmed by the negative consequences of massive dredging on coastal mangroves.
With land becoming more and more scarce, property prices is expected to be buoyed over the horizon. Investors looking to capitalize on a possible rebound in the real estate sector can buy into the Smart Real Estate Singapore portfolio on iAdvisor, which has returned a healthy 26.5% from a year ago and provides a dividend yield of 4.7%.
According to Bloomberg report, gold investors are loading up on the haven asset, sensing the dip in the price of the precious metal from about $1,362/Oz in early September to $1,265/Oz recently is a buying opportunity. Despite the price decline, investors have boosted their holdings of gold through exchange-traded funds to the highest since November 2016, or 2,163.4 tons.
The recent drop in gold has a lot to do with the rebound in the US dollar; since the safe haven asset is priced in the US currency, any gain in the greenback mean’s its more expensive to buy gold. Although gold may be suffering a rough patch, it does have some high-profile backers.
Billionaire Ray Dalio, the founder of Bridgewater Associates, has recommended investors consider placing 5 to 10% of assets in gold as a hedge against political and economic risks. BlackRock advised that in a world where economic or geopolitical perils lurk, investors hould hold bullion in their portfolio to balance equity and credit risks, adding that the prospects for real interest rates staying low are positive for gold.
An alternative to invest in gold would be to buy into the Gold Miners Inverse-Volatility US portfolio on iAdvisor, which comprises of US-listed gold mining companies. In a world where rising debt is a concern, we employ a filtering process to ensure the companies selected satisfy certain credit ratio requirements.
Diversified Assets Bearish:
According to a Bloomberg report, a growing number of hedge funds are getting worried about the current unusual state of calm in markets, expecting that it may not last for long. Firms are rolling out new funds designed to protect investors from rising market turbulence, in spite of so-called long volatility strategies being one this year’s worst performers. In recent times, financial and economic bigwigs from Nobel laureate Richard Thaler to BlackRock Inc. Chief Executive Officer Larry Fink has warned that the unusual state of calm in markets may not last.
Indicators of expected swings in stocks, bonds and currencies have fallen toward multi-year lows, while valuations for just about every major risky asset class are climbing. That’s despite heightened uncertainty over US economic policy and the prospect of war with nuclear-armed North Korea. Thaler highlighted the dissonance in a Bloomberg TV interview recently, commenting that “we seem to be living in the riskiest moment of our lives, and yet the stock market seems to be napping.”
Rather than positioning for a jump in volatility with hedge funds’ strategies, investors can opt for lower-fee ETFs linked to a downturn in equity indices such as the ProShares Short S&P 500, ProShares Short MSCI EAGE (Europe, Australasia & the Far East) and ProShares Short MSCI Emerging Markets. These inverse ETFs, which generally profit when its index constituents fall, are 3 of the 4 main components of the Diversified Assets Bearish portfolio on iAdvisor.
USDSGD slipped below 1.3600 Thursday following a weaker US dollar amid uncertainty about the prospects of US tax cuts and as investors digested news that President Donald Trump will likely pick Jerome Powell to lead the Federal Reserve.
The bias remains to the upside though, after the pair broke above its year-to-date downward trend channel last week. The key resistance remains at 1.3690. A strong break above it could lead to a push for 1.3900.
AUDUSD’s fall below its old support/resistance level of 0.7750 last week has led to renewed technical bearishness for the pair. 0.7600 will be key – a move below it signals more pain for Aussie bulls.
The currency pair failed to close above the 1.2900 handle after the US dollar weakened, and in spite of poorer-than-expected GDP data released on Tuesday, dampening the expectations of a rate hike later this year.
USDCAD is expected to meet strong resistance around the 1.2928 mark – the pair’s 50% retracement level from the high in May to its low in September.
USDCNH’s recovery over the past 7 weeks seems to have halted over the last week, with the pair failing to close above 6.6500 despite advancing beyond it three times. Further downside bias is expected; the medium-term support target is at 6.5578.
USDJPY continues to trade around the 114 handle, after the BOJ earlier this week left its massive monetary stimulus program unchanged. The major resistance level lies at 114.50 – a break above it could result in the currency pair embarking on a longer-term move upwards, with the double-top at 118.60 a realistic possibility within the next year.
GBPUSD has largely traded within the 1.3000 – 1.3300 range for most of this month. The Bank of England will convene later today and is expected to raise interest rates for the first time in a decade. The implied probability of a BOE rate hike currently lies at 86%, according to pricing data on Bloomberg. Failure to raise rates could result in decline back below the key 1.3000 handle.