Issue#: 498/2017

Spot values at a glance:







Daily Observations:

Stocks began the last week of November on a positive footing, with most Asian benchmarks higher and US equity futures advancing after last week’s tumble. Crude  oil futures stabilized above the $50/bbl mark. Among key variables for investors this week will be Fed officials’ speeches and policy-meeting minutes that may give clues on the outlook into 2019, and a key sit-down between Xi Jinping and Donald Trump. The yen dipped along with Treasuries, while China’s yuan held steady.


Brexit Deal Backed by EU:

The UK agreed to divorce terms at a special summit in Brussels, with European leaders warning British politicians they will not get a better deal if they reject the offer on the table because there is no “plan B.” Theresa May backed that view as she staked her authority on a campaign to persuade Parliament against the odds to endorse her Brexit deal. She refused to rule out quitting as UK prime minister if she fails. She said she will personally lead a “campaign” lasting “a few weeks” to win support for her agreement among politicians and voters. Then, Parliament will hold a decisive vote on whether to accept or reject the accord before Christmas.

Euroskeptics in May’s Conservative Party hate the withdrawal agreement and are vowing to oppose it because it forces the UK to keep close to the EU’s trade rules. Many pro-EU politicians in Britain also regard it as unacceptable because the UK will have no say over the rules it must observe.


2019 Rate Path in Question:

Investors will be monitoring for potential signals from the Fed in days ahead. This week brings a speech from Fed Chairman Jerome Powell, which observers will be scrutinizing to see if the market has gone too far in pricing out interest-rate increases amid the sell-offs in stocks, credit and crude oil. Global trade concerns could also sway risk appetite as US President Donald Trump prepares to meet China’s Xi Jinping. Futures are now only factoring in a little more than one of the three quarter-point rate hikes that Fed officials in September projected as likely for next year.

Investors also want answers to one of the biggest questions facing debt markets – the fate of the central bank’s $4.1 trillion balance sheet. In August, officials hinted they might discuss their plans for the portfolio before the year was out, so some analysts see potential for insights in the release on Thursday of minutes from the central bank’s November policy meeting. The eventual size of the balance sheet has implications for everything from the Treasury’s borrowing needs to bank reserves and how the Fed controls its policy rate.

A December rate increase is still largely priced in by the market. But the spread between December 2018 and December 2019 eurodollar futures, a measure of how much tightening traders expect next year, has plunged, dropping to as little as 27 basis points on Friday. That was the lowest level in 6 months and less than half the gap from mid-October.

Traders started scaling back their expectations for increases earlier this month after Powell acknowledged that slowing growth abroad, fading fiscal stimulus and the lagged effect of tightening are issues the central bank is watching. Vice Chairman Richard Clarida, who is also scheduled to speak in the coming days, helped add to the more dovish tone when he referred to the slowing of the global economy in an interview with CNBC. New York Fed chief John Williams is also scheduled to make an appearance this week, along with a slew of other central bank officials.


Slumping Japan PMI Signals Fallout in Global Growth:

A key gauge of manufacturing health in Japan fell to its weakest level in 2 years in November, offering another warning sign that a period of synchronized global growth may be coming to an end. The Nikkei Flash Japan Manufacturing PMI dropped sharply to 51.8 in November for its lowest reading since late 2016 when the synchronized upturn in the global economy was starting to gain traction.

The Japanese PMI attracts attention because it is one of the earliest measures of production activity to be released for a major economy, thus adding to signs that synchronized global recovery is coming to an end. The preliminary result suggests a rebound in Japan’s export-reliant economy after a disaster-hit third quarter may be weaker than expected.


Singapore Malls Amid Repositioning:

With some of the Singapore’s biggest mall operators reporting falling rents and rising vacancies, landlords, just like those elsewhere in Asia and the US, are being forced to reposition. They’re making room for yoga studios, boxing gyms and climbing walls, and expanding their food and beverage options, to make sure people come for the dining and fun, and hopefully, stay for some shopping.

Centers around the world have tried similar stunts in recent years, often to no avail. But in tiny Singapore, where it’s often joked that shopping is the national sport, online shopping penetration ranks behind Slovakia and Greece, putting it relatively low down for developed economies. It accounted for 5.7% of total sales in 2017, up from 2.1% in 2012, Euromonitor data show. The government is also weighing a tax on e-commerce imports from 2020.

Early signs have been positive. At VivoCity, the island’s largest shopping center, visitor numbers rose 3.1% in the 6 months through Sept. 30 from a year earlier as owner Mapletree Commercial Trust added an arcade complete with a full-sized bumper car ring. Yet actual shopping fell slightly. In other malls, visitors can spend a day taking a cooking class, participating in a complimentary yoga session or play a round of mini golf. Shopper traffic at CapitaLand Mall Trust, which has a portfolio of 15 centers, declined 1.8% in the 9 months ended September from a year ago while tenants’ sales per square foot climbed 0.5% over the same period.

Malls that can’t effectively incorporate activity-based tenants risk falling behind, both in terms of footfall and retail rents, according to Cushman & Wakefield Inc. Millennials in particular are a target of non-shopping ventures. But while the plethora of new activities have helped drive traffic, the uptick has failed to translate into real money.

Mall rents have dropped 18% over the past year and vacancies rose in the quarter through September, to 7.6%, Urban Redevelopment Authority data show. Until brick-and-mortar retail stores manage to convert foot traffic into in-store purchases, analysts expect rentals to remain subdued.


Goldman’s Rate-Shock Scenarios:

Goldman Sachs Group Inc. economists have proposed some “rules of thumb” for the impact of Federal Reserve interest-rate hikes on financial conditions and the US economy, which showcase the importance of policy makers’ communications.

While an unexpected 1.5 percentage points of Fed rate rises would tend to boost 10-year Treasury yields by 45 basis points, cut equity prices by 9% and boost the dollar by 4%, anticipated monetary moves have a “much smaller” effect, Goldman’s modeling showed. 10-year

Most forecasters see the Fed tightening by another 1 percentage point or less, with little likelihood of an acceleration from the quarter-point per quarter pace of the past year. Speculation instead has centered on the potential for a pause in 2019, in part thanks to the surge in financial-market volatility since early October. More hawkish Fed scenarios typically center on the historically tight job market at some point triggering a break-out of inflation.

The study estimated that a 1 percentage point increase in the budget deficit relative to GDP raises 10-year yields by about 20 basis points, based on historical average effects. Goldman’s model now calculates the risk of a recession is 26% on a 2-year horizon, up 5 percentage points this year, mostly due to tightening financial conditions, but still below average. For a 3-year horizon, recession risk is now 43%, “just above the historical average,” the economists wrote.


This Week Ahead:

All eyes this week will be on US President Donald Trump and his Chinese counterpart Xi Jinping planned meeting at the Group of 20 leaders’ meeting in Argentina that kicks off on Friday.

Market participants will study meeting minutes from the Federal Reserve to gauge its eagerness to boost interest rates in December.  Fed Chairman Jerome Powell addresses the New York Economic Club on Wednesday, while Fed Vice Chairman Richard Clarida is the keynote speaker at the Clearing House conference in New York where various Fed policy makers also talk.

European Central Bank President Mario Draghi addresses the European Parliament’s committee for economic and monetary affairs.

More notable on the data docket: Hong Kong trade is due Monday, China industrial profits Tuesday, U.S. new home sales and international trade are out Wednesday, while jobless claims are released Thursday. China manufacturing and non-manufacturing PMIs are due Friday.

Sources: Bloomberg

FX Updates:


Spot: 1.3746

USDSGD remains sandwiched between the 50-day moving average around 1.3750 and the 1.3700 support Monday, as investors await developments in the US-China trade negotiations with the nations’ leaders set to convene later this week. From a technical perspective, a decline below 1.3700 would likely lead to a swift retreat back to the 1.3600 support, last traded in the months of August and September.



Spot: 0.7244

AUDUSD inched higher earlier today, after finding some support around the 0.7200 handle last week. The pair had recently failed to break above the key resistance at 0.7315, although its 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: 1.3214

USDCAD last week reached a 4-month high of 1.3318, amid a weakening Canadian dollar, dragged lower by slumping crude oil prices. The pair has since retreated back to the 1.3200 handle but continued upward pressure, especially if WTI futures sink below $50/bbl, is possible.



Spot: 6.9413

USDCNH is likely to come under increased scrutiny this week, ahead of Trump and Xi’s meeting in Argentina later this week. The pair has largely tapered sideways over the past 2 weeks, although volatility looks set to rise over the near term. The key level continues to remain at 7.0000.



Spot: 113.24

USDJPY rose to a 1-week high earlier today, after the yen weakened against all of its G10 peers amid risk-on sentiment in Asia this morning. The pair’s 2018 uptrend continues to hold strong. The key resistance resides at 114.55, a level that has held 3 times since July last year.



Spot: 1.2812

GBPUSD is holding steady just above 1.2800 this morning in Asia, even after this past weekend’s Brexit summit conclusion which saw the EU unanimously agree to the terms of the current patchwork agreement between UK Prime Minister Theresa May and the EU Commission. If the 1.2662 support continues to hold, GBPUSD is likely to gain higher back towards the 1.3000 over the near-to-medium term.


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UEN: 201419754M

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