Spot values at a glance:
Asian stocks resumed last week’s slide amid signs of fatigue following a stellar year for the region’s equities. Chinese equities extended Friday’s slump triggered by state media warnings of stocks rising too fast. German Chancellor Angela Merkel’s push to form a coalition government collapsed. The US dollar found some support earlier today after sliding over its past two sessions.
Merkel’s Coalition Talks Collapse:
German Chancellor Angela Merkel declared failure in her bid to form a new government, throwing the future of Europe’s longest-serving leader into doubt and potentially pointing the Germany toward new elections. A month of exploratory coalition talks ended in a dramatic collapse just before midnight Sunday in Berlin when the pro-market Free Democratic Party, one of the prospective partners, walked out on a deal that Merkel said had been within reach. The collapse signals the limit of her pragmatic, non-ideological style of governing and leaves her options for staying in power for another 4 years dramatically narrowed.
Mugabe Facing Impeachment:
Long-time President Robert Mugabe was widely expected to announce that he was stepping down during a televised address on Sunday evening, but didn’t. The embattled 93-year-old leader incited a public backlash by ousting Vice President Emmerson Mnangagwa earlier this month, a move viewed as paving the way for his wife Grace, 52, to succeed him. That firing sparked military intervention and accusations of a coup, as he and his wife were placed under house arrest. Mugabe has been fired by the Central Committee of the Zimbabwe African National Union-Patriotic Front, which said he will face impeachment if he doesn’t resign by noon on Monday. Mnangagwa, who used to run Zimbabwe’s security apparatus, has been named as the party chief.
Canadian Inflation Eases:
Canadian inflation eased for the first time in 4 months in October as gasoline prices fell and the economy showed few signs of price pressure, bolstering the view the central bank can afford to wait before it tightens policy further. Annual inflation gained 1.4% last month from a year ago, down from 1.6% in September and in line with estimates.
Persistently weak inflation has been one of the main arguments against further interest-rate increases by the Bank of Canada, after it hiked to 1% this year. Senior Deputy Governor Carolyn Wilkins said last week policy makers can be cautious about further tightening even after the economy posted strong growth earlier this year.
Norway’s Oil Shock:
Norway’s $1 trillion sovereign wealth fund said last Thursday that it’s considering unloading up to $40 billion of its shares such as Exxon Mobil Corp., Royal Dutch Shell Plc and other oil giants to diversify its holdings and guard against drops in crude prices. Norway, which relies on oil and gas for about a fifth of economic output, would be less vulnerable to declining crude prices without its fund investing in the industry, the central bank said. The divestment would mark the second major step in scrubbing the world’s biggest wealth fund of climate risk, after it sold most of its coal stocks.
China Clampdown Continues:
China’s latest plan to rein in its shadow banking system is winning early plaudits from analysts, despite concern that it could fuel short-term market turbulence. The country’s financial watchdogs unveiled a proposal on Friday to overhaul regulation of asset-management products, which hold about $15 trillion and are seen as threats to stability in Asia’s largest economy.
Within the framework of sweeping rules released, funds investing in stocks and bonds will be allotted maximum leveraging levels, financial products will be encouraged to be channelled to the real economy rather than invest in other products for arbitrage, and banks’ wealth management products are required to reflect the risks and returns of the underlying assets, instead of offering a guaranteed principal repayment or rate of return. The draft rules will be applied to China’s $15 trillion of asset-management products.
Japan Export Grows:
Japan’s exports grew by double digits for a fourth straight month in October, continuing the best year-to-date performance since the global financial crisis. Exports gained 14.0% year-on-year, less than the forecast of 15.7%, while imports rose 18.9% over the same period, failing to exceed the 20.2% median consensus.
Improving global demand has fuelled strong growth in Japan’s exports throughout the year, with new smartphones creating demand for parts and machinery in recent months. In the 10 months through October, Japan exported 64 trillion yen worth of goods, the most over that period in any year since 2008. This has helped drive Japan’s economy to seven straight quarterly expansions, while investors expecting growing earnings have pushed stock prices to multi-year highs.
Singapore 2017 GDP Boost:
Singaporean Prime Minister Lee Hsien Loong says his country is expected to exceed expectations this year by recording economic growth above 3%. Addressing his People’s Action Party’s 2017 convention on Sunday, Lee said Singapore was benefiting from an improved world economy, but would have to press on with plans to restructure and upgrade the economy to sustain growth. Looking ahead, Lee said he expected government spending on healthcare, infrastructure, and other social services to keep rising, meaning that “raising taxes is not a matter of whether, but when”.
Singapore’s October non-oil domestic exports for October, released last Friday, surged 20.9% from a year ago, surpassing the median estimate of 11.9%.
USDSGD declined for the third straight week last Friday, as USD weakness continues to drag on the currency pair. The pair remains supported above its key 200-week moving average; a move below it is likely to result in a retest of the pair’s 1-year low of 1.3346. To the upside, the 1.3714 remains as the level of resistance.
AUDUSD continues to remain heavily offered Monday, after closing below 0.7600 for the week last Friday for the first time since June. Last week’s worse-than-expected Q3 wage growth has dragged the Australian dollar lower; further downside is expected this week.
A retest of the longer-termed uptrend, established since Jan 2016, is likely over the near term, with the 0.7500 handle the next support target in line.
USDCAD gained Monday and looks likely to gain above 1.2800 over the near term after last week’s inflation data eased in October, giving the Bank of Canada more time before it can tighten policy further.
USDCNH remains within its range over the past 4 weeks of between 6.6000 and 6.6700. The pair is currently trading just shy of the 6.6500 mark, as is expected to stay in its sideways range over the near-to-medium term.
According to a Bloomberg report, China’s intervention in the FX market has been limited in recent months; instead, the pair’s dominant driver has been the US dollar.
USDJPY retreated to the 112 handle Monday, to its lowest in 4 weeks, as recent reisk-off sentiment fuelled demand in safe haven assets such as the Japanese yen. Following its renewed downside bias, the pair could continue to trend lower this week, with the key support residing around the 111.50 mark.
GBPUSD lingered around the 1.3200 handle Monday, as sterling investors and traders turn their attention on a potential downgrade to the UK growth outlook this week, a challenge for the government under pressure to reduce austerity and deliver Brexit progress.
The pair touched a 2-week high on Friday but then slid to wipe out gains as the US dollar faltered. The pound is poised to continue to facing pressure amid Brexit uncertainty; EU President Donald Tusk said on Friday he wants British concessions on the divorce bill by early December.
The downside bias remains for the currency pair with a retest of the key 1.3000 on the cards over the near-to-medium term. A break below 1.3000 could lead a quick move towards 1.2889 – the pair’s 200-day moving average, last crossed in April this year.