November 23, 2017

Daily Observations:

The dollar held onto losses after tumbling as the latest Federal Reserve meeting minutes suggested divisions over the future path for US monetary policy. Chinese stocks declined after their recent surge that prompted government warnings about runaway prices. Singapore raised its growth forecast for this year, underscoring strength across Southeast Asian economies, with third-quarter data from the Philippines, Malaysia and Thailand exceeding forecasts as well. Gold and oil held onto gains after overnight rallies.

Fed Minutes:

Minutes of the Federal Reserve’s meeting earlier this month were released in the US Wednesday and indicated that officials saw an interest-rate increase in the near term despite divisions over the policy path given tepid inflation. “Many participants thought that another increase in the target range for the federal funds rate was likely to be warranted in the near term if incoming information left the medium-term outlook broadly unchanged,” according to the minutes. Policy makers, who held rates steady at the Nov. 1 meeting, are expected to hike next month as they continue with gradual tightening. Unemployment is at a 16-year low, although inflation remains well beneath their 2% target.

The minutes showed that while Fed officials remain confident in the labour market and above-trend economic growth, several are looking for stronger signs that price gains will pick up. A few even want to see inflation on an upward path before lifting rates again, underlining a persistent divide on the policy-setting FOMC.

US Dollar Sinks:

The US dollar suffered its biggest decline in more than 8 months after minutes from the latest Fed meeting earlier this month indicated a rate hike in the near term even as divisions persisted over the policy path forward amid tepid inflation. Investors interpreted the minutes as dovish, perceiving to the notion that some officials want to hit the pause button after December’s hike in order to wait for inflation to get closer to target.

The dollar has also been hurt due to a lack of progression and continued uncertainty regarding the tax reform. The Dollar index slid Wednesday to its lowest in a month; the next key support lies at the 92.70 level.

TPP Hold-Up:

Canadian chief executives are calling on Prime Minister Justin Trudeau to nail down and implement an 11-nation Pacific Rim trade deal, as Canada holds out in hopes of changes. The Business Council of Canada said the latest version of the Trans Pacific Partnership would be immensely beneficial and is imperilled by any delay.

A meeting in Vietnam of leaders of the 11 nations was cancelled this month when Trudeau didn’t show up, an absence the Canadians said was due to a lengthy meeting with Japanese Prime Minister Shinzo Abe. Trudeau has said the country won’t be rushed into a deal, which was agreed to initially by his predecessor. A Japanese newspaper report this week suggested the other countries might proceed without Canada.

UK Growth Downgraded:

In delivering his annual budget on Wednesday, Chancellor of the Exchequer Philip Hammond acknowledged official forecasts which showed Brexit already inflicting an economic cost. The Office for Budget Responsibility predicted growth will now undershoot 2% every year through 2021 and it halved its estimate for productivity gains over the next 5 years.

Oil Upset on the Cards?

Oil traders and analysts almost unanimously expect OPEC and Russia to prolong their production cuts next week. However, behind the scenes Saudi Arabia and Russia are still debating what course to follow. These high expectations, coupled with a recent surge in bullish bets on crude, amplify the risk to prices if the group can’t convince a hesitant Russia that it’s necessary to agree an extension right away, a Bloomberg piece reported on Wednesday.

Oil climbed to a 2-year high in New York on Wednesday in anticipation that the reduction in oil shipments from OPEC and its allies would further diminish the glut that’s weighed on prices for 3 years. The cuts are a success, but the job isn’t done. To prevent the stockpile surplus expanding again, International Energy Agency forecasts indicate OPEC needs to maintain the cuts beyond their March expiry.

Yet the dominant non-OPEC participant in the deal has reservations. Russia believes it’s too early to announce anything this month while Kuwait, the fifth largest OPEC producer and a member of the committee that oversees the accord, also believes the decision to extend should be taken closer to expiry, said people familiar with the matter.

China Equities Slump:

Chinese stocks fell with the Shanghai benchmark index heading for its biggest loss since August, as a bond market rout and concern the state was trying to cool gains among the best equity performers spooked investors. The Shanghai Composite Index declined by as much as 2.1%, with the biggest drags on the index being Ping An Insurance and Kweichow Moutai Co.

Yields on sovereign debt and top-rated local corporate notes have climbed to the highest level in 3 years as a deleveraging campaign gathered pace. With more than $1 trillion of local bonds maturing in 2018-19, it will become increasingly expensive for Chinese companies to roll over financing.

Singapore GDP Boost:

3Q GDP expanded 5.2% year-on-year, accelerating from the prior quarter’s 4.6% gain and beating the median consensus of 5.0%. It was the fastest pace of increase in more than 3 years.

A healing in global trade this year has helped boost export-reliant economies like Singapore’s, with manufacturing buoyed by demand for electronics goods. Growth has started to broaden out to other industries, such as services, giving economists and the government reason to upgrade their full-year projections. Prime Minister Lee Hsien Loong said earlier this week that growth could exceed 3% in 2017.

The trade ministry said Thursday global growth is expected to improve next year, on the back of faster expansion in the US and some emerging markets. The US economy will probably “pick up slightly” due to a resilient labour market and modest business investment while growth in the eurozone area and in China is set to moderate, the officials said.

Weekly Thematic News:

Solar Energy:

According to a Bloomberg New Energy Finance report, China, the world’s biggest carbon emitter, is poised to install a record amount of solar-power capacity this year, prompting researchers to boost forecasts as much as 80%. About 54 gigawatts will be put in place this year, Bloomberg New Energy Finance said Monday, raising a forecast of more than 30 gigawatts made in July. That amount of additional capacity would likely surpass all the solar energy generated in Japan in 2017.

The growth of the market has benefited top panel producers, including JinkoSolar Holding Co. and Trina Solar Ltd. China installed 43 gigawatts of solar power in the first nine months of 2017, already above the 34.5 gigawatts for all of last year. China has been the world’s biggest solar market since 2013. It surpassed Germany as the country with the most installed photovoltaic power capacity two years ago.

With the move to clean energy increasingly becoming heavily-emphasized, the multi-year growth of the solar energy industry is expected to continue its exponential growth. Investors can purchase the Solar Energy US portfolio on iAdvisor, which has outperformed every other portfolio over the last 30 days, returning 8.4% as of last Friday.

Smart Real Estate Singapore:

According to a Bloomberg report last week, 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 28.7% 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 67.3% year-on-year.

FX Updates:

USD/SGD:

Spot: 1.3475

USDSGD fell to a fresh 2-month low Wednesday after a dovish slant to the Fed’s latest meeting minutes resulted in USD weakness overnight. The currency pair was also dragged lower due to better-than-expected Singapore GDP numbers on Thursday, thus strengthening the Singapore dollar.

With the key 200-week moving average breached, the next bastion of support lies at the 1-year low of 1.3346.

AUD/USD:

Spot: 0.7615

AUDUSD recovered back above 0.7600 Thursday, driven by commodity gains led by iron ore, which rallied 4% overnight, and a weak US dollar overnight. The medium-term bias remains to the downside though, with downward channel since September continuing to hold.

USD/CAD:

Spot: 1.2795

USDCAD slipped to a 1-week low Thursday, retreating back to its 1.2700 handle. Higher crude prices and increased momentum in NAFTA talks helped buoy the Canadian dollar as well. The 1-month low of 1.2668, remains to be tested.

USD/CNH:

Spot: 6.5921

A broadly weaker USD overnight has resulted in USDCNH sliding to 3-week low. The pair is threatening to break to the downside of its medium-term sideways range. According to a Bloomberg report, China’s banks are continuing to stock up on foreign currency in a sign that they are preparing for greater swings in the exchange rate. A decline below 6.5500 may pave the way for more downside towards the 2017-low of 6.4436.

USD/JPY:

Spot: 111.30

USDJPY retreated below the key 112 handle Thursday, as momentum for the currency pair took a turn towards the downside. With many traders harbouring short yen and long dollar positions, Thursday’s plunge in USDJPY could have more room to run. The 108 handle is next in line to be tested.

GBP/USD:

Spot: 1.3327

GBPUSD traded above its 50-day moving average Wednesday on the back of a USD selloff. The 2-month high of 1.3338 is in danger of being breached soon; a break above that may lead to a charge towards 1.3500.